Reg and Dereg
Electricity Rates Reflect State Policies and Priorities.
While all electric companies use similar methods to generate electricity, each operates differently to meet the unique needs of its service area. As discussed, where you live determines how your rates are set. Regardless of whether your state has adopted electric choice or not, electricity costs nationwide are affected by variables such as fuel prices and availability, usage patterns, infrastructure investment costs, and regulatory policy.
The cost of fuel used to generate electricity has a direct bearing on the price an electric company charges for service. That cost not only depends on the type of fuel used, but also on the distance between the source of fuel and the power plant, and related transportation costs.
Environmental considerations in many locations require the burning of fossil fuels of low sulfur content to meet strict air quality restrictions regarding power plant emissions. Such fuels tend to be more expensive than those with higher sulfur content. Federal or state public policies may even preclude the use of certain fuel sources altogether.
State tax rates are another major variable that affects retail electricity rates. For example, some states impose a power generation tax. This tax is based on kilowatt-hours sold and is passed through to customers in the form of higher rates. The revenue from these taxes is used to address local needs.
Differences in customer electricity usage patterns have an effect on the price per kilowatt-hour. Most electricity is used during daytime hours when businesses are operating and residential customers are active. During the night, when businesses are closed and residential customers are asleep, the rate of consumption is much lower. Electric companies schedule the operation of their generating units to meet these changing patterns of use, with more expensive units operating only at times of high demand.