Compare your current electricity bill with one from a few years ago. You will notice that the price you pay per kilowatt hour (kWh), as well as your overall total power bill, have increased over the years. In fact, retail electric rates have been steadily rising for quite some time now.
To understand why they have become so expensive, we first need to step back and look at how power prices are calculated in the first place.
What it costs the utility to provide you with electricity
The price of power typically reflects how much it costs the utility to source and supply the electricity. There are two ways that utilities generate power and those are:
- To generate the energy at their own plants.
- To purchase the power from an energy supplier.
Both of these options cost money. Generally speaking, your electricity rate measured as cents per kWh is a reflection of how much it’s costing your utility.
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Solarman says
Let’s break this down a little further shall we? Let’s take a coal fired plant as an example. You burn coal to heat water to steam to drive a turbine that generates power. For the amount of BTUs supplied by the coal burning, about 40% is lost to heat dissipation. Another approximately 10% is lost to friction in the turbine and generator assembly. To get the (centralized) generation source into the power grid one must step up the generated power for a 5% to maybe 10% loss in transformer step up losses. You’re down about 60% already. When the high voltage lines get to your town, they hit a switching station where they are stepped down again for about a 3% power loss. When the power gets to your housing tract it may be stepped down at least twice more for a 6% power loss, perhaps more. Older systems more steps down, more power loss, older transformers more heat and more power loss. So, from burned coal in to your home, the “power company” loses about 70% of the original input. THIS inefficiency is what is costing you when the utility “To generate energy from their own plants” or buy it from someone else. Demand charges are charges incurred when something like a natural gas Peaker plant is fired up. Peaker plants may be used ONLY 5% of the time, they get their revenues from YOU and so you see spot market prices of electricity going for around $1,000 per MWh sometimes or $1kWh when it gets to you. They hide this in something like a “fuel” charge. When you look at your electric bill the kWh may be the same $0.12 to perhaps $0.16 per kWh, but the “fuel charge” will fluctuate.
Many folks don’t want to believe it, but ON AVERAGE, electricity rates have increased by 1% a year over the last 30 years. Part of the increases may be in blocks when the utility has to build another generation facility. They raise rates to pay for it and you may have had 5 years or 10 years without electricity cost increases, then bam one year you get a 5% rate increase then the next year another 5% rate increase.