Understanding Your Residential Natural Gas and Electric Rates: 5 Factors to Consider
Have you ever looked at your utility bill and wondered where the price you pay for your energy comes from? Depending on where you live, what time of year it is, and what’s going on around the world, the price of your natural gas and electricity can fluctuate.
Energy pricing is driven by many different factors:
1. Supply and Demand
While electricity and gas are two completely different utilities, they are both swayed by supply and demand. For natural gas, price adjustments help to balance supply and demand. So when there is too much natural gas in the market, the price goes down. When there is less natural gas in the market than is being used, the price goes up. Natural gas that is stored in underground fields helps natural gas suppliers meet demand in peak seasons, but if events occur to deplete that supply, prices can fluctuate significantly. (Hello, Polar Vortex.)
Electricity, on the other hand, is a secondary source – meaning it’s produced by converting a primary source (like coal or wind) into power. The price of electricity can be influenced when the supply of these primary sources causes a rise in cost.
No matter if it’s a major cold spell, higher-than-average temperatures over summer, or a catastrophic weather event like a hurricane, the weather can cause dramatic changes in the marketplace in a very short period of time. How? It comes back to supply and demand – for example, hotter-than-normal weather can lead to more A/C usage, which can spike the demand for electricity. The same is true for extreme winter temperatures and natural gas consumption.
3. Cost of Transportation
The distance natural gas or electricity must travel varies by market. Depending on your state and how far you are from a power plant or the source of natural gas, transmitting energy to the utility company’s distribution points can add charges to your bill.
4. Power Outages
If a power plant shuts down or slows production, this can effect the supply of electricity, and thus, cause fluctuations in the price. These outages are most often caused by extreme weather, routine maintenance, or unexpected maintenance.
5. State Electric or Natural Gas Market Regulations
Depending on what state you live in, rates can be regulated or deregulated. If you live in a state with a regulated energy market, the Public Service Utility Commissions sets the prices for energy.
States with deregulated markets, also known as choice markets, allow energy customers to choose who supplies their energy, giving them more control over the rate they pay. Find out if you live in a deregulated state.
According to the US Energy Information Administration, residential electricity rates averaged 12.55 cents per kilowatt hour (kWh) in 2016. Hawaii reported the highest rate of 26.87 cents/kWh and Washington reported the lowest rate of 7.4 cents/kWh.
Want to take more control of your energy budget?
At IGS Energy, we strive to be more than just a home energy supplier. We want to help you make the best choice for your family, home, and budget. We offer a variety of energy products and prices that give you more control of your energy budget while allowing you to continue receiving expert distribution, metering, and billing services from your utility.