What Is A Good Electricity Rate?
Rates differ from state to state, city to city, time of year, provider to provider… so how can a consumer know that they are looking at a good electric rate?
There are many factors that have an impact on electricity rates. So, it’s important to have a good understanding of what those factors are and what you, as an electricity consumer need to look for in a ‘good’ electricity rate.
Home vs. Business Rates
For starters, are you a residential or commercial customer? If you’re using your electric service for your home, then in general expect to pay more per kilowatt hour (kWh) than the business down the road.
Other Factors Determining a Good Rate
There are several factors that have an impact on both residential and business electricity rates. In some situations, consumers can influence the rates they receive, while in other situations, consumers don’t have control over rate increases or decreases.
A few of the factors that have an impact on rates include:
Weather: The seasons have an impact on electricity rates because consumers typically use more electricity in the summer and winter months. Since summer is warmer and winter is cooler, consumers need to use more cooling or heating, which increases electricity demand. This also typically increases electricity rates.
Policies/Regulations: While the majority of states in America have similar regulations and policies when it comes to electricity, there are some differences. Some states work with fully regulated prices, while others work with unregulated prices. Some states even work with a combination of the two.
Fuel Cost: Power plants require different fuels to generate electricity. The cost of these fuels has a huge impact on the rates of the electricity that is generated. If the cost of the fuel is greater than the rate charged for the electricity generated, adjustments need to be made to ensure that the system can support itself.
Location: The rate of electricity differs from state to state. The reason for the difference in electricity rates has a lot to do with service areas, population size, ease of transmission, cost of fuel and more.
Transmission & Distribution: The way in which consumers receive their electricity depends on the transmission and distribution equipment used by many utilities. These systems need repairs and constant maintenance. Upgrades can also cost a lot of money. In order to keep everything working smoothly these costs trickle down into the electricity rates charged to the consumer.
Electricity Rates vs. Electricity Savings
It’s important to note that the impact on rates discussed here does not include the different ways in which consumers can save on their electricity bill. Electricity rates tend to be fairly static and once a consumer signs up for a plan or particular service, that rate will stick until further notice. What can change is how much electricity the consumer uses in the home or business. For example, if a residential consumer leaves all the lights on in their house for a month, they will be charged per kWh for that consumption.
Electricity savings include different ways in which the consumer can reduce their electricity consumption so that they do not unnecessarily increase their energy bill. Electricity saving methods include upgrading appliances to energy efficient models, or using LED bulbs. In addition, many states also have many tax breaks or ways to increasing energy savings. These savings do not impact the actual rate of electricity. They impact a consumer’s energy bill.
Energy Deregulation
Energy deregulation can also have an impact on electricity rates. While not all states across America are deregulated, the ones that are may help encourage lower rates. Deregulation separates the supply component of electricity from utilities, which remain responsible for all other elements of the electricity process (like distribution and maintenance for example).
Separating the supply component of electricity from the rest of the utility’s business allows organizations like electricity suppliers to form. Electricity suppliers (also known as retail electricity suppliers or electricity providers) help to flood the energy market with competition. Think about it: When there is only one or two utilities providing services to consumers, where’s the incentive to lower rates? The consumer has no choice but to use the utility that is available to them. When there is competition, electricity suppliers must offer the very best products and services. If they try to charge more, a consumer has the option to search elsewhere. If the consumer finds a better rate, they can then switch to that electricity supplier.
In an energy deregulated model, the consumer is encouraged to take control of their electricity needs because they have the option to choose.
How Plans Affect Electricity Rates
Finding a good rate isn’t just about picking the plan with the lowest cent per kWh. Any consumer can do their research to find the lowest plan rate, but what about the plan details? What impacts does the plan itself have on the rates that the consumer pays?
Fixed: If the plan is fixed, this means that the rate the consumer signs up for will apply to the per kWh consumption made throughout the billing period. Fixed rate electricity plans generally offer the best rate to consumers because there is better visibility on the actual price of electricity.
Variable: These types of plans mean that the rate of electricity will change over time. Consumers need to really understand the details of these types of plans as an increase in rates could come as a surprise.
Contract Length: The rates for electricity might seem really low, but what about the contract length? Does the low rate come with a 36-month contract that is expensive to cancel? If this is the case, the low rate might not be worth the terms.
Total Consumption: Does the low rate come with stipulations about minimum kWh consumption amount? In many cases, consumers don’t actually reach this amount, which means that they don’t get the low rate. They receive a higher rate.
Electricity Facts Label (EFL): All consumers need to read the Electricity Facts Label associated to the plan. This information is required by law, and will outline all of the details of the plan, including the rate or pricing structure the consumer can expect to pay. Reviewing this information carefully will reveal whether or not the rate is ‘good’.
Additional Fees: Many plans show the rate per kWh, however they do not show the additional fees or cost that is charged from the utility (or other). Digging into the plan details will reveal this information and gives the consumer a better idea of the actual cost.
