Why Do Electricity Prices Fluctuate?

April 20, 2016

Electricity prices generally reflect the costs to build, finance, maintain, and operate power plants and the electricity grid (the complex system of power transmission and distribution lines). Some for-profit utilities also include a return for owners and shareholders in their prices.

There are several key factors that influence the price of electricity:

  • Fuels – Fuel costs can vary based on the per unit cost, such as dollars per ton for coal or thousand cubic feet for natural gas, and the relative cost, in dollars per million British thermal unit equivalent. Electricity generators with relatively high fuel costs tend to be used most during periods of high demand.
  • Power plants – Each power plant has construction, maintenance, and operating costs.
  • Transmission and distribution system – Maintaining and using the transmission system to deliver electricity contributes to the cost of electricity.
  • Weather conditions – Rain and snow can provide water for low-cost hydropower generation. Extreme temperatures can increase the demand for electricity, especially for cooling. Severe weather can also damage power lines and add costs to maintain the electricity grid.
  • Regulations – In some states, prices are fully regulated by Public Service Commissions, while in other states there is a combination of unregulated prices (for generators) and regulated prices (for transmission and distribution).

View this article by the U.S. Energy Information Administration for more information on the many factors that influence electricity prices.

The Michigan Chamber’s Utility & Telecom Savings program can help you to identify other ways to save money on your utility and telecommunications bills. Through our program, we are able to perform a thorough analysis of your utility billing, leading to past financial recovery and ongoing monthly savings.