07/15/2013
Many Factors Impact Electricity Prices:
Electricity prices generally reflect the costs to build, finance, maintain, manage, and operate power plants and the electricity grid (the complex system of power transmission and distribution lines), and to operate and administer the utilities that supply electricity to consumers. Some utilities are for-profit, and their prices include a return for the owners and shareholders.
Some key factors that affect the price of electricity include:
Fuels — Coal is relatively inexpensive while natural gas tends to be more costly.
Power plants — Construction and maintenance costs are greater for some kinds of power plants than others.
Transmission and distribution lines — Maintaining and using the transmission system to deliver electricity contributes to the cost of electricity.
Weather conditions — Rain and snow can provide water for hydropower generation. Extreme heat can increase the demand for electricity for cooling.
Regulations — In some states, prices are fully regulated by Public Service Commissions, while in others there is a combination of unregulated prices (for generators) and regulated prices (for transmission and distribution).
Electricity Prices Are Usually Highest in the Summer:
The cost to generate electricity actually changes minute-by-minute. However, most consumers pay rates based on the seasonal cost of electricity. Changes in prices generally reflect variations in electricity demand, availability of different generation sources, fuel costs, and plant availability. Prices are usually highest in the summer because more expensive generation is added to meet the higher demand.
