Factors That Impact Electricity Prices
I was recently asked by a member about what factors impact electricity prices. We talked about how the daily cost of living seems to have increased across the board. Just as inflation has impacted everything from the price of gasoline to the price of eggs, costs for the materials required to produce electricity have also risen. This is a timely topic, so I wanted to help explain some of the factors that impact electricity prices (and energy bills) in this month’s issue of the Cooperative Connections.
While there is no short answer, there are a few key elements that impact electricity prices and rates. Some of these factors Union County Electric Cooperative can manage, some of them you can impact, and other factors are beyond our control. So, let me break it down.
There are two primary parts to your monthly electric bill: a monthly service charge and a kWh charge. To understand your total energy costs and what impacts your bill, lets unpack one piece at a time.
The first is a fixed monthly service charge, which covers the costs associated with providing electricity to your home. This includes equipment, materials, labor and operating costs necessary to serve each meter in Union County Electric’s service territory, regardless of the amount of energy used. In order to ensure the reliable service you expect and deserve, we must maintain the local system, including power lines, substations and other necessary equipment. Like many other businesses, we’ve experienced supply chain issues and steep cost increases for some of our basic equipment. For example, the cost for a standard underground distribution transformer (which looks like the green metal box in your yard) went from $1,213 in 2020 to $4,535 this year and wait times to receive this essential equipment has increased dramatically as well. Some of these expenses must be passed on to our members because we are a not-for-profit cooperative. I should note that the service charge is the same for everyone and the costs are shared equally across the membership.
Another component of your monthly bill is the kWh charge, which covers how much energy you consume. You’ve likely noticed the amount of energy you use can vary from month to month and is typically impacted by extreme temperatures. When temperatures soar or dip, your cooling and heating equipment runs longer, which increases your home energy use. Regardless, energy consumption is an area that you have some control over, and you can lower your monthly bill by actively reducing energy use. The biggest energy users in a typical home is the heating and cooling system, so your thermostat is a great place to start if you want to lower your usage.
A component that is not currently separated out on your bills, but has an impact on our wholesale power costs, is the Demand charge. In the past I have written entire articles regarding Demand, but in essence it is how efficiently you utilize energy. If you come home and turn on a bunch of lights and appliances at once, you will generate more demand. If you spread that same amount of usage out over a few hours, your demand will be lower. Lower demand means lower costs for the Cooperative, which helps us provide you with the lowest of cost power possible.
I hope this information sheds light on some of the factors that impact electricity prices. While we can’t control the weather or the rising costs of materials, please know that Union County Electric Cooperative is doing everything possible to keep internal costs down.
If you are a regular reader of my column, you are aware that our last rate adjustment was in 2016 and that we have been facing these mounting costs for the past several years. In the coming weeks the Union County Electric Cooperative Board of Directors will be taking action to adjust our rates, primarily as a result of the increased material costs.
We’re here to help you, too. Contact us if you have questions about your energy bill or for advice on how to save energy at home.
Until next month, stay safe and God bless.