The Real Reason Energy Rates are Fluctuating

The Real Reason Energy Rates are Fluctuating
August 22 06:52 2017 Print This Article

Over the past decade, the average cost of electricity has risen by about 3% each year. Even with deregulated markets, cheaper natural gas and more environmentally conscious commercial energy policies, the utility bill still seems to fluctuate with each month.

The solution should really be as simple as turning to a fixed rate or lighting up candles around the house, but even this won’t protect your utility bill price from volatility. It’s important to understand how electricity is priced and to determine measures that will help combat and control your fluctuating utility bills.

Electricity Prices: The Law of Supply and Demand

Price volatility simply reflects changes in the consumer market. While foreign wars and natural disasters will have a major effect on the supply of energy resources, there are more common and local culprits that will affect the electric supply of your utility distributor.

Utility distributors will purchase electricity either through a natural gas producer, an electricity producer, wind mills, etc. and then sell that energy directly to customers. Having the resources and connections to cut out this middleman in a deregulated state is highly recommended.

Utility companies will typically purchase electricity in bulk for a long period of coverage, referred to as hedging. Hedging generally protects consumers against price volatility and ensures a steady supply.

On the other hand, utility companies may also make short term purchases to provide energy for consumers during critical peak periods or major weather events. Fortunately, if consumer demand remains low during this period, this will cause the price of electricity to fall as utility companies attempt to sell off their excess supply.

Other factors begin to come into play, such as electricity generation, which contributes to nearly 57% of your utility costs. This variable includes the construction, maintenance, and operating costs of running the power plant itself.

Even the amount of customers can have an effect, which can alter due to trends, up to and including their online presence. Many companies have not caught up to the modern era of internet marketing, which puts them at a disadvantage, as companies with less customers have less opportunity to allow for bulk-made discounts.

Transporting your electricity from the producer to plant to the user also accounts for 20% of the average consumer electric bill.

Local delivery charges are a major factor of your electric bill. These charges are primarily determined by the electricity that flows through the meter and state regulations. This charge can be mitigated by reducing your electric demand.

Consumers have control over supply costs through open market bidding. An energy budget consultant can mitigate this process using sophisticated aggregator software and sort through the competition to find the best prices for your home or commercial business.

Your main options to protect against price volatility remain reducing your electric demand and finding the best supplier prices over the market. Unfortunately, this will not ensure entire consumer price protection.

Externalities

So you’ve reduced your consumption, even during peak demand, and your electric bill is higher than the previous month, what gives? First, check your historical usage data and see how your electric bill fared during the previous years.

Changing seasons will greatly affect your electricity prices. Summer remains the season with the highest utility bill charges. Different weather patterns, such as heat waves, will result in higher peak demand across your locality, raising your electric bill.

Peak demand is one factor utility companies use to charge your energy consumption and measure your demand. Critical peak demand occurs during a specific date in the year with the highest demand. Curtailing your energy use during peak demand hours and the critical peak demand day will result in a lower electric bill and reduce your capacity tag.

Outdated appliances or a poorly maintained AC will rapidly increase your electrical consumption each month. Every appliance, from your refrigerator to your lights should be an energy star appliance to improve your household’s energy efficiency and save you money.

Other Considerations

It’s important to constantly shop around for the best prices to curb your supply side reliance on a potentially deceitful utility provider. Sometimes factors, such as a fluctuating billing cycle or seasonal equipment use will have a great effect on your monthly utility bill without you knowing it. Compare your utility bills month-by-month and work with an energy consultant to develop solutions to protect your home from a fluctuating price rate.

 

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Louise Rice
Louise Rice

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