Many Americans are worried that their electricity bills keep rising despite their efforts to reduce energy consumption. The bills are usually high during winter and summer, especially when the heat wave makes every home rely on air conditioning.
The electricity cost has increased by about 28.5% between 2019 and 2004, and the trend seems to continue if relevant authorities and homeowners do nothing about it. An average American will likely pay about $300 per month for energy costs besides mortgage or rent, food, clothing, and transport, which is a worrying fact.
However, a closer look at what affects electricity prices and disparities between demographics and states can help understand the complex American electricity market. This article will highlight the factors contributing to the rising power cost and possible solutions to the problem.
Inflation and How It Affects the Cost of Power
The current annual inflation is about 7.5 percent, affecting purchasing power. As inflation rises, the value of each dollar goes down, which means that the same amount of money will buy fewer and fewer electricity units as years go by.
The grid power has also become unreliable due to the fluctuating demand due to heat waves and changing weather patterns. As a result, consumers view this as a power shortage and buy more, which again drives up the price.
With these forces in play, the solar power of oklahoma seems to be the only viable solution. This is because solar energy is unaffected by inflation, and the government offers incentives to encourage more homeowners to switch to solar power. However, with all factors constant, the price of grid power will continue to rise with inflation.
Tiered Grid Energy Pricing
Some people wonder how their monthly utility bills almost double after a certain threshold. Utility companies seek to provide power to as many people as possible. So, they use a tiered pricing model where the price per unit (kilowatt-hour) increases when the user surpasses the specific threshold.
For instance, a utility company might charge $0.15 for the first 900kWh that a homeowner consumes. However, if the property owner or tenants increase power consumption beyond 900kWh, the price per unit might shoot from $0.15 to $0.25 per unit. This means that people who consume more power beyond the threshold will bear a more than proportional increase in energy bills.
So, what can homeowners do to cut energy costs? Electricity consumers should research and understand their utility company’s pricing model to avoid exceeding the threshold.
Change in Fuel Prices
Electricity and fuel have an economic relationship, which means that the demand, supply, and prices of one fuel will affect the electricity demand. Besides, some utility companies rely on fuel to generate power.
Even the companies that do not use fuel directly to generate power rely on vehicles to maintain grid power, which means the fuel prices will affect the electricity rates. If there is a low supply of fuel, especially gas or petroleum fuels, more people will rely on electricity, which increases the demand for electricity and electricity rates.
So, disruption or constraints in fuel supply will increase electricity prices. Fuel supply challenges usually occur when natural calamities or weather events affect the roads or fuel delivery infrastructure.
Power Transmission or Distribution Costs
Electricity power is transmitted from the power plant to consumers’ homes using wires. This means that the distance between the power plant and the consumers could affect the power prices.
Although some utility companies might charge all consumers the same rate regardless of how far they are from the power plant, they usually factor in the transmission costs and power line maintenance. Replacing power posts, transformers, and power lines is quite expensive, and utility firms must consider these costs when setting the price per unit of electricity.
Unfortunately, electricity consumers can do little to reduce or manage the power transmission costs. However, if several utility companies serve a neighborhood, homeowners in such a location can choose one that charges less.
Weather Changes
People living in areas with extreme temperatures rely on electricity or fuel to maintain comfortable indoor environments. So, the electricity prices shoot during winter and summer because of the high demand for cooling and heating. Weather also affects power generation since some power plants use wind or water to generate electricity.
Rainwater can improve hydro-power generation and reduce prices. Favorable wind speed can also translate to a lower cost of wind power production. However, when the weather changes reduce power generation or distribution, the consumers will certainly bear the extra cost.
Type of Consumer
Why do utility companies charge some consumers more for an equal number of electricity units? Supplying electricity to retail consumers, whether in individual homes or commercial premises, is expensive. However, one connection to an industry will take a short time, and the industry will consume more power.
Besides, the industrial consumer can receive high-voltage power and manage it accordingly within the industry, which reduces the electricity supply cost. Retail consumers need power with the right voltage supplied to their homes or commercial properties, which requires significant investment and maintenance practices.
Regulations Affecting Electricity Prices
Some states have public service commissions or regulatory bodies that develop policies to control electricity prices. Others have regulated and unregulated aspects controlling electricity pricing.
For instance, the regulatory authorities may control the price of distributing and transmitting power while the utility company factors the cost of generating energy. So, the price depends on fixed and variable factors, which consumers should understand in order to estimate or regulate consumption.
Locality
Locality can affect the cost of power since some states have few power plants. Fuel prices are higher in some states due to distance and logistics dynamics.
Fuel and power pricing regulations can affect the price per unit in some states. For instance, a state like Wyoming that depends on petroleum fuels to generate power will likely charge more per unit since fuel must be imported.
These factors affect electricity prices and explain why the prices keep increasing. One of the solutions is to switch to solar, which is rarely affected by these fluctuations. Those who cannot install solar should learn how to regulate electricity consumption to avoid surprising monthly power bills.
