Understanding the components of your electricity bill can help you make more informed decisions when it comes to managing energy costs. Your bill is made up of two main sections: Generation (Supply) and Distribution.
What’s Deregulated and What’s Not?
The Generation (Supply) portion, which accounts for approximately 60-70% of your total electricity cost, is open to market competition. This gives you the option to shop for competitive energy prices from third-party suppliers. The Distribution portion, however, is regulated and remains controlled by your local utility provider.
Components of Electric Generation (Supply) Costs
- Energy (Commodity) Cost
This is the cost of the electricity itself, which typically represents the largest part of your supply charge. The price fluctuates depending on the fuel mix used to generate the electricity (e.g., natural gas, coal, nuclear, or renewables). As energy prices change based on supply and demand, so does your energy cost.
- Capacity Cost
Capacity refers to the amount of electricity you are expected to need during peak demand periods. It is calculated in kilowatts (kW) and ensures that there is enough power available to meet your highest electricity demand. This portion of the cost covers the infrastructure and resources required to meet your energy needs during those peak times.
- Transmission Cost
Transmission covers the cost of delivering electricity from power plants to local utilities. These lines transport high-voltage electricity over long distances, ensuring it reaches your community. Transmission costs are typically set by regional transmission organizations and are affected by the distance the electricity travels and the condition of the infrastructure.
- Congestion Cost
If the grid is experiencing congestion (when too much electricity is being transported through a limited number of transmission lines), the Independent System Operator (ISO) imposes congestion costs. These charges reflect the cost of managing power flow through limited paths to avoid overloading parts of the grid.
- Ancillary Services Charges
These are charges for services that ensure the grid operates efficiently and remains reliable. They include costs for backup reserves, voltage control, frequency regulation, and black start services (the ability to restart the grid after a widespread power outage). These charges are essential for maintaining a stable and secure electricity supply. - Renewable Portfolio Standards (RPS) Costs
Many states require utilities and suppliers to obtain a portion of their electricity from renewable energy sources, such as solar, wind, and hydroelectric. The cost to meet these Renewable Portfolio Standards (RPS) is passed along to consumers through this charge. It ensures that a percentage of your power comes from clean, renewable sources.