Your electric rate is determined by how much electricity you use each month. This price can vary by season and region – depending on fuel prices, weather conditions, local regulations, and power grid integrity.
When electricity demands peak, wholesale rates are higher. That’s why Retail Electric Providers (REPs) generally vary their pricing based on peak times.
Table of Contents
The price of natural gas is expected to rise significantly this winter, especially for those using it for heating and electricity generation. The US Energy Information Administration says the wholesale price of gas is forecast to reach its highest point since 2009 in inflation-adjusted terms.
It doesn’t have to be this way, and there are things consumers can do to reduce their energy costs this winter. The key is understanding why prices vary by season and using your power wisely during off-peak times.
For instance, summer months are usually higher in demand than winter because more households use air conditioners and other electronics in the daytime. In contrast, winter weeks are lower in order, with household consumption slack during the day and peak usage at night when families come home from work.
Electricity rates, like the electricity rates in Ohio, can also fluctuate based on the time of day or specific weather conditions in different regions. This is called a time-of-use rate plan (TOU), and it is a simple way to control your energy costs by knowing exactly when you’ll use the most and least of your electric power.
A TOU plan works by charging more for electricity during peak demand and less for electric use in off-peak periods based on the difference between the cost to produce and distribute power and direction. By encouraging consumers to limit their electricity use during these periods, power companies can help alleviate peak demand on the grid.
Electric rates are set twice yearly through rate cases filed by individual utilities. These filings are made to set price levels for residential customers.
When an electric company files a rate case, they must provide the Public Utilities Commission (PUC) with specific information about your usage, such as the time of day you use energy and the time you spend using it. The PUC reviews these filings to determine the best prices for consumers in your area.
The PUC will then determine what price level is best for you based on your usage history and your location in Texas. This helps ensure your rates are affordable and will be within your budget.
During peak times of the day, like 5-9 pm on weekdays, wholesale prices can increase significantly. By changing your electric use to off-peak hours, you can save on your energy bill and reduce your environmental impact.
Consider a time-of-use rate plan, which sets your electricity price by the time of day and season. These plans can be a great way to save money, but you should be careful about how you use electricity during peak times of the day.
Electricity rates may vary by season because electricity suppliers must decide how to manage power demand. During high-demand periods, they must bring in more expensive energy sources like coal and natural gas, which raises their overall costs.
To help their customers avoid overpaying for electricity, many utility companies offer time-of-use (TOU) rates. These pricing options are designed to reflect, as closely as possible, the actual cost of electricity at different times of the day and at other times of the year.
For instance, if you typically run your dishwasher or laundry machine in the evening, your wholesale electricity prices will likely increase during these peak hours because other households also use these appliances. However, with a TOU program, you’ll be incentivized to do those household tasks during off-peak periods, like night or early morning.
Your TOU rate may be higher in the summer because your air conditioner is working harder to keep your home cool, which requires more electricity. But you can also save on your electricity bill by taking simple steps to conserve energy during summer.
You can start by setting your thermostat a few degrees cooler in the winter and higher in the summer. You can also turn off TVs, lamps, and other heat-generating appliances when you’re not using them, reducing energy usage. Finally, use ceiling fans to help increase air circulation and reduce energy consumption.
Generally, electricity rates are cheaper when energy demand is low. This is because energy companies can buy electricity at lower wholesale prices than when demand is high. But plenty of other factors contribute to your electricity bill – and they can vary significantly daily.
Two primary components of your electricity rate are the Energy Delivery and Supply charges (market price). The Supply charge is based on wholesale market prices, while the Energy Delivery charge is a fixed charge that utilities pass on to customers.
Various factors, including the weather, demand for electricity, and energy production costs, impact the cost of electricity. It also can be influenced by state regulations that set the rules for electric suppliers to charge their customers.
For instance, in Texas, energy rates are typically higher during the summer and lower during the winter. But when a cold winter storm hit the area in 2021, energy demand spiked and increased prices dramatically.
This is not to say that you should be discouraged by your utility’s price hikes, but it does mean that it pays to research and take advantage of options that can help you manage your electric bill. Some of these options are time-of-use programs that allow you to pay different rates for your electricity usage during specific periods of the day. Others offer alternative supply offerings that are more secure than your utility provides.