Residential Electricity Prices: A Consumer's Guide
Electricity is an essential part of
modern life. In our homes we use it for lighting,
running appliances and electronics, and for heating and
cooling. Most consumers do not think much about their
electricity until a power outage, or when they are
“shocked” by a high utility bill. Fortunately in the
United States, power outages are relatively infrequent
and short in duration mainly because we have one of the
most advanced, reliable, and well-maintained electricity
generation, transmission and distribution systems in the
world. Electricity bills, however, are frequent and
unavoidable. The dollar amount charged each month is a
function of the price per kilowatthour (kWh) and the
amount of kilowatthours consumed; other add-ons to your
bill include State and local taxes and costs for
maintaining reliability.
Further understanding of your monthly electric bill, and
the history of retail electricity prices, begins with a
discussion of the basics of how electricity is produced
and delivered to the average residential customer.
Where Does Your Electricity Come From?
Electricity is delivered to you by the local utility
through a network of existing transmission and
distribution lines, often referred to as the “grid.”
Transmission lines are the large, high-voltage power
lines that move electricity from power plants to
substations and are often supported by tall metal
towers. Smaller, lower voltage distribution lines move
power from substations and transformers, and are often
seen along residential streets supported by wood poles.
Most of the existing grid was built during a highly
structured, highly regulated era designed to insure that
everyone in the United States had reasonable access to
electricity service. The utility customers, through fees
authorized and regulated by State regulatory
commissions, generally paid for developing and
maintaining the grid. The utilities built powerplants
and connected the plants to the grid. Electricity
generated at these plants is loaded onto the grid, where
it is transmitted and distributed to you. Your usage is
measured with a meter (Figure 1). The utility,
distribution company or retail service provider selling
you power may be a not-for-profit municipal entity, an
electric co-operative owned by its members, a private,
for-profit company owned by stockholders (often called
an investor-owned utility), or a power marketer. Some
federally-owned authorities--including the Bonneville
Power Administration and the Tennessee Valley Authority,
among others--also buy, sell and distribute power. The
origin of the electricity you consume may vary.
Utilities may generate all the electricity they sell
utilizing just the power plants they own. Utilities may
also purchase some of their supply on the wholesale
market from other utilities, power marketers,
independent power producers, or from a “power pool”
created by neighboring utilities often based on
membership in a regional transmission reliability
organization. Also some residential, industrial,
commercial, and institutional users of electricity have
the means to produce electricity for themselves and sell
any excess back to their utility. In addition, there is
some power consumed in the United States that is
imported from Canada and Mexico.
Many local grids are interconnected for reliability and
commercial purposes forming larger, more dependable
networks to maximize coordination and planning while
reducing electricity prices. These networks extend
throughout many States. The North American Electric
Reliability Council (NERC) was established in 1968 to
ensure that the grid in the United States was reliable,
adequate and secure. Some of its members have formed
regional organizations with similar missions. These
organizations are referred to as Independent System
Operators (ISOs) and Regional Transmission Organizations
(RTOs). They are part of a national standard design
advocated by the Federal Energy Regulatory Commission
(FERC). Some have members who connect to lines in Canada
or Mexico. Most, depending on the location and the
utility, are indirectly connected to dozens and often
hundreds of power plants.
What Are the Types of Power Plants that Generate
Electricity?
Power plants can be grouped into the types of fuel or
energy source they use to produce electricity. These
include fossil fuels (coal, natural gas, or a refined
oil product), nuclear energy, and renewable energy
sources such as water (hydroelectric power), biomass,
waste-to-energy, geothermal, wind, and solar energy, as
well as alternative fuels. Figure 2 shows the relative
share of electricity generation by fuel/energy type. One
of the features of electricity is that your television
and stereo, heating system, air conditioning system,
appliances and light fixtures cannot tell the difference
between the types of generation, location, or fuel
sources. This makes all the electricity on the system
usable by all those connected to the grid.
What Determines the Price of Your Electricity?
A major component of the price of your electricity is
the cost and availability of fuel used for power
generation and the transmission necessary to deliver the
power to you, as well as construction costs of plants
and the associated expense for operation and
maintenance. Supply and demand for fuel and
transmission, international events and changes in
weather also affect the electricity prices. In most
areas, the cost to generate electricity fluctuates daily
and monthly. These fluctuations are a response to
changes in demand for electricity. Daily demand for
electricity is usually highest in the afternoon and
early evening (on-peak). Seasonal peaks reflect regional
weather and climatic conditions, with the highest
occurring in the summer when air-conditioning use is
greatest. Power plants tend to operate in two basic
modes: base-load and base-load peaking load. Base-load
power plants are most efficient generating electricity
at an even, consistent level, around the clock, and
generally include nuclear, coal-fired, geothermal and
waste-to-energy plants. Some plants may sit as a
“spinning reserve” during off-peak or on-peak periods.
Peaking plants are turned on or “dispatched” as demand
increases above the normal base demand or load. Peaking
plants are expensive to operate, often fueled by refined
oil products, or natural gas, and have a fuel cost per
kWh higher than a baseload plant. Hydropower plants can
operate in base and/or peaking mode.
A relatively small amount of electricity is generated
from “pumped storage” plants. These economically
efficient plants pump water from a river or reservoir up
into reservoirs located above hydroelectric turbines.
Additionally, some high-deliverability salt-dome natural
gas storage facilities support power plants using
natural gas providing an extremely flexible supply of
power. Wind and solar power plants are referred to as
intermittent resources. They may supply power during
peak and off-peak periods depending on the availability
of their energy source.
Most investor-owned utilities are monitored and
regulated by State Public Utility Commissions (PUC) and
the FERC. The breadth and scope of regulation varies by
State. Many States have “restructured,” but only some
have embraced fully the deregulation of retail prices
and the introduction of competition, which allows
residential retail choice. Restructuring to increase
retail choice availability varies by State. (Check with
your State PUC or local utility for more information
regarding retail choice availability.)
Average Electricity Prices in the United States
The electricity price of residential in the United
States today is more than four cents less per kWh in
real terms than it was in 1960 (Blueline, Figure 3).
There have been fluctuations in electricity prices due
to the oil shocks of the 1970s and the move towards
greater conservation in the1980s. Residential utility
customer rates generally reflect the utility’s cost to
produce or purchase power, plus associated transmission
fees, ancillary services to increase reliability, and
other costs incurred by the utility, plus a
State-approved and regulated rate-of-return on the
assets it owns. Most residential customers’ rates
fluctuate on a seasonal basis, as overall demand
increases and decreases, mainly in response to weather
and climate conditions. Electricity price differences by
State are often related to the cost and availability of
the fuels used to generate, as well as the existence of
retail competition.
Your Electricity Consumption Primarily Determines Your
Total Bill
Your total bill for the month, before taxes and other
add-ons, is the price per kilowatthour multiplied by the
the number of kilowatthours you have consumed over the
month. The typical residence has numerous electricity
consuming appliances and devices. Figure 5 shows the
typical share of residential electricity consumption by
the major types of uses for electricity.
What Can Residential Customers Do to Reduce Electricity
Bills?
There are several steps that you can take to reduce your
electricity prices. Conservation and increased
efficiency are popular methods. You can reduce your
electricity prices by turning off lights and appliances
when they are not being used and add additional weather
insulation to doors and windows if necessary. These are
among the easiest and least cost methods of reducing
your electric bill. You may also want to buy more
efficient lights and appliances. Some utilities offer
demand management programs to encourage major
electricity uses off-peak, including “time-of-use”
rates, which are higher during peak demand periods and
lower during off-peak times. Some utilities may allow
you to average your annual bill over 12 months to lessen
the shock of seasonally high electricity prices. Check
with your local utility to find out about the programs
they have to help you reduce your monthly bill. In
addition, consumers in some States have the option to
choose the company selling them their electricity, which
could result in lower prices. Residential choice
programs are available or planned in as many as 24
States. If you have that option, check the websites of
your State PUC and your utility for the names of retail
service providers or power marketers active in your
area.
http://www.eia.doe.gov/neic/brochure/electricity/electricity.html
Related: Electricity Price |
