The amount you pay for electricity on your monthly bill might look like a straightforward calculation, but how that rate gets determined combines a multitude of factors.
On average:
58% of electricity costs are related to its generation – the cost of the fuels and processes to create the energy.
This cost fluctuates with the availability of resources and the varying demand for electricity at a given time. Electricity market factors also play a role in generation costs.
13% are related to transmission – delivering the high-voltage power from the generation site to local communities.
On top of regular operations and maintenance, transmission costs can include congestion fees and other expenses associated with the shared interconnection.
29% are related to the distribution system – the lines, poles, and other assets that safely connect the transmission system to your home.
Each utility has a different share of expenses in these categories, depending on:
- System efficiency
- Peak demand
- Access to markets (both to buy and sell generated electricity)
- If the utility owns or operates any generation facilities
- Local climate and risk of natural disasters
- State and local regulations
Utilities also incur fixed costs, including:
- Equipment (lines, poles, transformers, lineworker gear, etc.)
- Infrastructure (construction for power plants, substations, bond repayments, etc.)
- Operations needs (vehicles and related maintenance, computers, phones, software)
- Facilities (rent/mortgage, storage, security, environmental fees)
- Employee salaries and benefits
On your bill, these costs can be recouped through:
- Variable charges, which depend on how much energy you use.
- Customer charges, which are a flat rate each month.
- Demand charges (typically only for commercial customers), which reflect peak use.
When you take steps to use electricity wisely – using less when people typically use the most – you save money for you and your utility.
