Factors Affecting Electricity Rates in the United States

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Did you know that the electricity rates you pay for are a culmination of several costs that power producers incur? Many things occur for you to access electricity. Power producers must generate electricity and supply it to consumers through equipment that utilizes fuel.

Besides operating on fuel, the power supply equipment requires regular maintenance and management. Power producers must also hire engineers to build and operate power plants and electricity grids. All these add to the electricity bills you pay every month.

In this article, we explore the primary factors that influence the electric supplier rates. You will also get to know the major components of electricity prices in the United States.

Factors Influencing Electricity Rates in the United States

Many internal and external factors affect electricity prices, prompting the power rates to change after every minute. Here are the critical factors influencing electricity rates.

1.     Fuel Costs

Fossil fuels are the largest sources of electricity generation in the United States, followed by renewable electricity sources like hydro, wind, and solar energy. Most electricity companies usually use the energy supplied by fuels to generate and distribute power.

As the costs of fuel vary, any change in their prices affects the electricity rates in the United States. If the demand for electricity increases, the need for fuels such as natural gas also rises. That increases the fuel prices, resulting in higher electricity rates.

2.     Costs of Power Plants

It’s no doubt that the construction and maintenance costs of power plants can be relatively expensive. However, the prices vary by the kind of electricity generation technology used to harness the power, whether powered by natural gas, coal, or renewable sources.

The construction cost for different types of power plants is a critical consideration for most investors. Power plants that require huge capital for construction and maintenance charge higher electricity rates. The power plants’ operating costs also influence electricity prices.

3.     Costs of Transmission and Distribution System

Like power plants, electricity transmission and delivery systems also require a significant amount of capital for building and maintenance. The maintenance costs of power delivery systems include repair of system damages resulting from accidents and natural disasters.

energy prices power lines

Photo by Matthew Henry on Unsplash

4.     Weather Conditions

Changes in weather conditions can affect the production of electricity in power plants that rely heavily on renewable sources of energy. Favorable weather conditions promote power production, which attributes to low electricity prices.

Snow and rainfall provide more water that is ideal for generation of hydro-electric power, attributing to low electricity rates. High wind speeds also create a favorable environment to harness more power at low costs. However, adverse weather conditions like extreme temperatures increase the demand for electricity used in cooling, raising the prices.

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5.     Type of Consumers

Did you know that electricity charges for commercial and residential consumers are higher than those for industrial consumption? Supplying electricity to residential and commercial customers costs more because it must get stepped down to lower voltages.

Despite consuming more power, industrial consumers pay the lowest electricity rates. It’s because they use higher voltages not stepped down, reducing the distribution costs. Here are the annual average prices of electricity for different types of customers in 2018.

  • Residential: 12.89¢ per kWh
  • Commercial: 10.66¢ per kWh
  • Transportation: 9.77¢ per kWh
  • Industrial: 6.93¢ per kWh

6.     Seasons of the Year

Most consumers usually pay for electricity based on seasonal rates. The rates are generally high in the summer than in other seasons due to the high demand for electricity. It’s because many people use electricity to power their air conditioning systems.

As more people demand more electricity, the need to generate and distribute more power increases significantly. Consequently, the costs of electricity will also rise.

7.     Location of Residence

It is no surprise that the costs of electricity also vary based on the locality where you live. In 2018, Hawaii had the highest retail electricity prices of 29.22 cents/kWh on average, while Louisiana recorded an annual average cost of 7.65 cents/kWh. To compare electric rates by state, you can check this data by the U.S. Electricity Information Administration.

8.     Electricity Regulations

State governments regulate retail electric prices and facility planning through their public service commissions. The federal government, on the other hand, regulates interstate power sales through the Federal Energy Regulatory Commission.

In some states, public utility commissions entirely regulate electricity rates. While in other states, there are combinations of both unregulated prices for generators and regulated prices for power transmission and distribution costs.

Components of Electricity Prices in the United States

Electricity rates reflect the costs of financing, building, maintaining, and operating power plants and electricity grids. The cost of generating power is the largest component of the electricity prices in the U.S. It takes up 60.5 percent of the total electricity costs.

According to the U.S. Electricity Information Administration (EIA), electricity distribution is the second major component of electricity prices with a 27.0 percent contribution to the total costs. Transmission costs come third with 12.5 percent of total electricity costs.

How to Find the Best Electricity Prices in the United States

electricity rates effected by

Many electric companies in the U.S. generate and supply electricity to different parts of the country. However, finding the right electricity company with the best electric supplier rates can be overwhelming, especially that these companies offer similar services.

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Some of the top electricity companies in the United States include Duke Energy, Exelon Corporation, NextEra Energy, Southern Company, Dominion Resources, and Consumers Energy. You can check the electricity companies in your state in this article.

Here is how you can find the best electricity prices and lower your energy consumption.

1.     Compare Electricity Rates of Several Companies

Different electricity providers have different utility costs for generating power. You should shop around and compare electric rates of various companies to find the most convenient and lowest electric rates.

As you compare electric company rates, you should also check on the following aspects:

  • Quality of the companies’ customer services
  • Their response time to consumer complaints
  • Additional fees for issues like switching or canceling providers
  • Reliability of their electric energy sources

When you compare electric rates here, you will note that an excellent electricity company offers lower electricity prices, quality customer services, and responds promptly to emergencies. Besides, their energy transmission and distribution systems are reliable.

2.     Adopt Best Energy Conservation Practices

Besides selecting the best electric supplier, you can also lower electricity consumption by adopting the following practices:

  • Regular Maintenance of Electric Equipment: Repair of faulty electric equipment can help you conserve more energy and save a lot of money. For instance, if your HVAC system operates below its optimal efficiency, it consumes excess energy.
  • Use Energy-Efficient Lighting: You should use Light Emitting Diodes (LED) and Compact Fluorescent Lamps (CFL), which has lower power rates than traditional incandescent bulbs. That’s because LED and CFL bulbs emit very little heat.
  • Install a Programmable Thermostat: These electric devices can regulate your HVAC system more efficiently, reducing your energy consumption by 30 percent. You can program it to turn the heat down during the hours it’s least utilized.


Now that you understand all the factors that affect electricity rates in the United States, it is essential to define your electricity needs, whether industrial, commercial, or residential. That will help you find a suitable electricity company that will work best for your needs.

When searching for the lowest electric rates in the energy market, you need to compare energy rates of several electric suppliers. Evaluate their electric utility bills and fees while shopping around. By doing so, you’ll find the best electricity rates in your locality.