Hey Spiderman, do you understand your electric bill?Filed in:
Having a choice means that companies cater their offerings to the consumer – power to the people! But as they say in Spiderman: with great power comes great…confusion?!? Since there is a choice of products, you can’t always be sure you are getting the best deal - and how does all this actually show up on your electricity bill?
Read on to find out…
Recent activity on our site has been all about electricity options – we launched the tool that helps you find the best deal for those of you in deregulated power markets. Having a choice means that companies cater their offerings to the consumer – power to the people! But as they say in Spiderman: with great power comes great…confusion?!? Since there is a choice of products, you can’t always be sure you are getting the best deal - and how does all this actually show up on your electricity bill? Read on to find out…
If you have checked out ClearlyEnergy’s electricity search engine you know that in a flash- pun intended- you can easily compare rates from different retail power providers in your area. It may be new to you that you can select a retail provider, and you may be curious what components of your electricity bill this selection affects. So we thought we would take some time to go over the three sections that make up your electric bill
If you’ve used our electricity search function, you’ve seen that companies offer “power” for less than your standard rate. What is meant here by “power”? It actually only covers the supply of electricity, which does happen to be the largest part of your total utility payment but isn’t everything. Here’s a line-item explanation of an average bill*:
Starting at the power plant, generation refers to the energy produced by a facility (a coal-fired power plant, hydroelectric station, wind farm, etc.) before that energy goes to your region’s power "grid." The cost of generation depends on many factors including the mix of generation facilities that serve your grid and the relative price of fuels plants use to make power – like natural gas and coal, the time of year, the overall demand on the grid and the length of the electricity contract.
Once it leaves the plant, power flows onto the transmission grid. Transmission is the cost of bringing electricity from those power plants to distribution points near you – it covers the maintenance of high-voltage power lines and towers as well as monitoring equipment.
If you switch from your local utility to a competitive electricity supplier, both generation and transmission portions of your bill change: the rate will be replaced by that of the retailer you select to enroll with, often under the label “electric supplier charges”.
To get the power from the big transmission lines to where you use it requires a distribution network. Distribution charges embody the cost of delivering electricity through power lines strung on local utility poles and across transformers to a voltage suitable to your house. This charge also includes the cost of repair crews and emergency services, like when hurricane Sandy knocks trees onto power lines causing a blackout – distribution charges pay for workers you see cutting branches and fixing wires to get your power back. Regardless of what company you choose to get your power from, your local utility continues to charge you this portion of your bill.
On average, the supply - i.e. generation and transmission sections of your utility bill - make up about 75% of the total monthly cost. The local utility remains responsible for all components of distribution, including billing, maintenance, meter reading and service. That’s why it seems confusing when you sign up for a retail provider: your bill typically still comes from the local utility and most of your interaction with power services is still with the local guys, since they’re who you call when you have a blackout or a power line is down. Going with retail providers means you pay them to generate a suitable quantity of power, but rarely deal with them because they’re not responsible for the power once it gets close to your house.
What is “standard offer”?
If you do not select a competitive electricity supplier, your local utility will supply you with its default or "standard offer service". That’s the “price to compare” on our search tool. Each utility has rules to set standard offer rates, but they typically involve procuring power many years in advance, and with the minimum required quantity of renewable electricity.
With electricity choice, you can tailor power purchases to your preferences – not just for “green” power, but also to your risk profile and energy use needs, similar to the way you can choose a cell phone plan best suited to your calling profile or a mortgage that suits your risk preference.
What are fixed vs. variable rates?
Sticking with the mortgage analogy, some power deals resemble adjustable rate mortgages (ARM), where rates vary once an initial lock-in period expires. A variable rate follows the electricity prices – if they go up, your rate goes up, but in months where they’re lower than average you are saving a bundle. Just like fixed rate mortgages, fixed rate plans charge you the same each month even though the actual price of electricity varies according to weather, fuel prices, amount of demand, etc. – the plan estimates an average and the risk of fluctuations stays with the retailer. If you think energy prices are likely to go up, it’s a good time to lock in a fixed rate for the next 12 or 24 months, if you think they are likely to go down, stay on standard offer or pick a variable rate while you wait for the right window of opportunity.
*some of this content was adapted from the website of CleanCurrents, which has a great explanation of a utility bill breakdown
By Veronique Bugnion, co-Founder ClearlyEnergy. You can find me on Google+