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How are Electricity Costs Calculated?

by On May 9 2017

Everyone knows that some electricity providers offer more affordable plans than others, and that if you don’t pay your bill, your electricity will be shut off. What not a lot of people understand, however, is how electricity providers calculate the costs we pay every month! Discount Power is dedicated to providing our customers with the lowest prices possible, and understanding how electricity prices are calculated goes a long way toward explaining how we are able to offer lower prices than our larger competitors.

The first thing to understand is that there are many factors that influence consumer electricity prices. Your bill generally reflects the costs to build, finance, maintain, and operate power plants and the electricity grid, which is a complex system of power transmission and distribution lines designed to deliver electricity to your home or business. Some for-profit utilities must also ensure a return for their owners and shareholders in their prices.

Here are the five most important factors in determining the price of your electricity:

1. Fuel

Different power plants use different fuels to generate electricity, and the price of fuels such as coal or natural gas can fluctuate throughout the year. Electricity generators with relatively high fuel costs tend to be used most during periods of high demands.

2. Power plants

Every power plant has construction, maintenance, and operating costs. These costs are passed on to the consumer.

3. Transmission and distribution system

Maintaining and using the transmission system to deliver electricity contributes to the cost of electricity. Infrastructure must be repaired and maintained to ensure no loss of service, especially after damaging storms.

4. Weather conditions

In Texas and other states, extreme temperatures can increase the demand for electricity, especially for cooling. Severe weather can also damage power lines and add costs to maintain the electricity grid.

5. Regulations

In some states, prices are fully regulated by Public Service Commissions, while in other states there is a combination of unregulated prices (for generators) and regulated prices (for transmission and distribution).

The price of electricity isn’t all that affects your electric bill, however. Always read the fine print and examine your contract terms closely! Some electricity providers have terms that will charge you more for services such as paper billing, dropping below minimum usage, using certain payment methods, even the delivery of your electricity. These fees add up and can really affect your monthly bill.

Discount Power is proud to stand behind our everyday low prices. We don’t need gimmicks to trick customers—we became one of America’s fastest-growing companies by offering great rates, great customer service, and no minimum usage fees. Compare our prices to your current plan. Want to make the switch? It’s easy! Contact us today and start saving!