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Factors that are affecting electricity rates

31st October 2021 Print
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There are many different factors that affect the electricity rates in your area. The type of power plant supplying energy to your home or business, transmission lines, and even distribution lines all impact what you pay for electricity. In this article, we will discuss some of the most influential factors on rates and how they can be managed to reduce costs.

The cost of the electricity itself

In many states across America, two or three different types of utility companies provide customers with their electricity supply: an electric company (or co-op), a transmission system operator (TSO), and/or a distribution service provider (DSP). In these situations, your local city council will determine how much you pay per kWh based on which entity provides your service. For example, electricity rates in Texas are set by the Public Utility Commission of Texas (PUCT) based on which entity is providing you service. The PUCT determines that an electric company can charge no more than $0.07 per kWh, while a co-op or TSO may only charge up to $0.05 per kWh and distribution companies cannot charge any more than $0.028 per kWh for residential customers in areas where there are multiple providers serving your community. 

Since the cost of the electricity itself accounts for 30% of what consumers pay for power each month, you should be sure to know who provides your supply so you understand how much it will impact your bill every month.

What type of plan do you have

Whether it's a fixed rate, variable rate, or time-of-use plan, your electricity provider's plan can impact your cost. Keep in mind that while variable rates are great for consumers who want to pay less, they will increase during peak demand hours (usually summer afternoons) when energy providers need you to run the most appliances at once so everyone has enough power. 

If this is something you don't want to happen or it happens frequently, then a fixed rate may be more beneficial since it doesn't change based on supply and demand trends within the industry. The type of plan you have directly impacted what you pay every month, so make sure it fits with your lifestyle.

How much energy do you use in your home?

This is the biggest factor that impacts your electricity rates. It's also one of the most controllable since there are many things you can do to conserve energy and reduce costs each month. Simply put, if you use less power then your cost per kWh will be lower which means your bill overall will go down as well. There are some great ways to save on this end including using LED light bulbs or limiting how much water you heat up in order to wash clothes or take showers (since heated water accounts for 20% of what residential customers pay).

Where your power company gets its power from 

In some areas, you may have the option of choosing where your power comes from. Renewable energy sources such as wind and solar can be a great way to support environmentally friendly initiatives. Some organizations offer 100% renewable plans that also help reduce costs for consumers by using market purchases or directly funding new projects that produce clean electricity.

Other companies use sustainable fuels with less impact on the environment but still provide competitive rates per kWh so customers don't need to sacrifice quality for savings. Make sure you know what type of fuel your provider uses before signing up since this has a big influence on how much it will cost each month (especially if they're not green).

Whether or not you're enrolled in a rebate program for solar panels and other renewable sources

In many states, you can receive a rebate for installing solar panels on your roof. In addition to reducing your carbon footprint and supporting sustainable initiatives in the community, this is also one of the best ways to reduce electricity costs each month since those who use these types of clean energy sources pay far less per kWh than those who don't (and even what they would be charged without it). Check with your local city council or power company to see if you qualify for any rebate programs that can help lower your costs.

Whether you work during the day or at night

Many companies utilize different strategies to lower their energy costs so they can remain competitive in a global market. One of those ways is by operating on off-peak hours when demand for electricity isn't as high and therefore rates are often cheaper per kWh. 

This means that if your business runs from nine to five, Monday through Friday, then it may be more beneficial for them to use power outside of typical peak usage times which would reduce how much it costs every month since these plans have a slightly higher rate but require less upkeep over time (and will save money). If this works with your schedule then there's no reason why both parties shouldn't take advantage of this option. 

On the other hand, if you work during the day and your business is open in the evenings then this may not be an option for them.

The time of year

Most power companies use seasonal energy rates in order to reduce costs when demand for electricity is typically lower. During the summer, everyone turns on their air conditioning units which creates a spike in usage and therefore monthly bills (even if you live somewhere where it's always hot). 

This means that wintertime tends to be slightly cheaper since there are fewer people using massive amounts of power so providers have more supply than they need at this point. If you know what season your plan runs through then make sure you get an idea of how much each kWh will cost before signing up or it could come as a surprise later on down the road once winter comes around again.


When you consider all of these factors, it's no wonder that electricity rates can be so variable. If you want to save money on your monthly bill and improve the environment at the same time, we recommend getting more information about how different types of power sources affect what you owe each month. Once you know where your energy comes from in terms of renewable or non-renewable resources, whether or not rebates are available for solar panels in your area, and which plan is right for you based on when this power will be used during the day or night hours, then taking action becomes much easier!

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