Why Electricity Rates Vary

If you’re a consumer in a deregulated energy market, you have the power to choose what supplier you use to power your home and commercial property.  However, during the search for electricity rates and plans, chances are you have seen the cost of these plans vary greatly.

In fact, energy rates can vary from customer to customer, even when they are in the same region, town, or neighborhood. The reason for these variations depend on each individual situation, but we’ve come up with ten main reasons why electricity rates are so different from customers to customer.  Understanding these reasons is instrumental for any energy consumer who wants to understand the plan they are signing up for during the shopping process.

1. Time of Year – The time of year that you purchase a new energy plan can greatly impact how much that energy costs. Electricity prices change virtually every minute of the day, but they are typically highest in the summer.

2. Competitive Markets – In deregulated markets, the customer?s power to choose is the number one reason for variations in electricity rates. The bigger and more competitive that market is, the more variation you will likely see.

3. Location – Every location is different and energy costs can vary greatly depending on where you are located. Hawaii has some of the most expensive rates in the country, while Washington state has some of the lowest. There are certain states and cities that are notoriously higher than others, but prices can even vary within the same state or utility, based on the market, type of consumer and the conditions of the industry.

4. Minimum Usage Charges – Most suppliers have a minimum that they require their customers meet for their plan, meaning no matter how much energy they use, there is a minimum amount that the customer will always be charged. This amount and the stipulations surrounding minimum usage charges can influence the rates that each consumer must pay for their plan.

5. Renewable Energy – In deregulated states such as Texas, Ohio and Pennsylvania, green energy has become the latest craze for local suppliers. The amount of renewable energy available, the type of source and the amount of renewable energy being used can all impact the price of energy in a certain area.

6. Type of Customer – If you are shopping for both a residential and commercial energy plan, chances are you will see some variation in the individual rates. The average price of residential power in terms of kWh is around 10 cents in the United States. The average price for commercial contracts is a bit lower as of today.

7. The Influence of Brokers – An energy broker works directly with retail electricity providers (REP) and consumers to find the best rate and plan for the consumer and his or her needs.  Think of it as a real estate agent selling a house for you — the more the broker “goes to bat” for you so to speak, and the more aggressive they are at procuring energy for you, the better deal (and lower rates) you can sometimes receive.

8. Individual Plans – Every plan and every company is different, which is why smart shoppers take the time to compare the different plans available. There are variable plans, which change as the market does and fixed plans that guarantee a certain rate for an extended period of time. Depending on the type of rate each individual consumer chooses, the cost of energy per kWh can change.

9. Type of Fuels – The type of fuels used to generate electricity can influence how much rates are in different regions. Depending on how the electricity production process goes in a specific area, different fuels that can be more costly or more affordable may be used.

This can be nuclear power, coal or a variety of other fuel sources. This fuel source, although used early on in the supply chain greatly impacts the eventual cost for consumers.

10. Overhead for Electricity Suppliers – In deregulated states, individual electric retailers are able to sell energy to customers. Depending on how much it costs to generate that power and how much the suppliers can get it for, all influences how much the companies charge their consumers.

These factors all play a major role in what ends up being the final rate or cost per kWh for energy consumers. Understanding these influences and why they impact price can only help consumers be more educated and savvy shoppers when it comes time to find a new energy plan for their property.