How Power Companies Spend Your Money
Whenever you open your wallet to pay for a product, it is usually after you made sure that what you are buying is well worth the price. Why is the price low or high? Does it align with your ideas about the cost of resources that go into manufacturing the product? Is there any way to get the same quality cheaper?
In the case of your electric bill, you may wonder where your money goes and why energy rates are what they are. How is your utility company using your money and how does it come up with the rates you are paying? Here is a short attempt to answer these questions in a few paragraphs. A power company’s biggest expenditures are the fuel used to generate electricity and the operating costs. Most power companies use a diverse fuel mix to protect themselves from fluctuations in the market. This happens even when regional particularities dictate specific fuel percentages, such as, for example, a heavier use of coal or natural gas. It is important to keep in mind that rises in fuel costs is the one major factor in increasing electricity costs. In order to respond to today’s increasing energy demands, power companies also need to invest in the continual development of energy infrastructure such as transmission lines and distribution systems. According to the U.S. Department of Energy’s Energy Information Administration and its 2015 Annual Energy Outlook, electricity use will continue to increase by the 24% previously prognosticated between 2013 and 2040. Building new power plants and enhancing the efficiency of the existing infrastructure is a must in order for the electric companies to meet these demands. Another important spending area is taxes and regulation compliance. Electric companies must comply with a large collection of federal, state and local regulations that translate into significant costs. Reducing power plant emissions is just part of their responsibilities. Waste disposal, species protection, recycling and wetland management are other areas of heavy spending and regulatory compliance. Add to that the power generation tax imposed by some states and the financial and accounting requirements that every business must comply with – and you get a costly mix that is passed on to the customer.
Finally, large industries lobby heavily at the state and federal level, and power companies are no exception. Energy is a top lobbying sector, focused on creating a favorable environment for the operation of electric companies. However, such lobbying efforts may take less desirable turns when they mean blocking the development of market competitors through the exercise of political influence. Since the solar energy industry provides essentially the same goods as electric companies, consumers’ money may end up, ironically, supporting legislation that limits their ability to choose alternative ways of generating electricity.
In the end, who is setting power retail prices? In many states, it is the state regulators who decide on electricity rates, by calculating power generation and distribution costs and taking profits into account. However, other states have implemented an electric competition model, where electricity suppliers try to lower their costs to become attractive to customers.
So what does all this mean for you, as a private energy consumer? It means that the electricity you receive from the grid is a fluid commodity, prey to both political and social changes, taxes and regulations, and to positive or negative lobbying efforts. The best way to escape this circle of dependency in which many actors play a role in shaping your energy bill is to take steps towards energy independence. This means investing in alternatives types of energy solutions, such as residential solar technology.
As the result of an industry that has seen major progress and plummeting prices in the last decades (significantly accelerated during the last few years), today, solar panels are both an affordable and a sound energy alternative. As a solar energy consumer, you are controlling your own energy production and consumption, and can become a private energy provider by sending excess electricity back to the grid. If you are considering installing your own solar power roofing system, give us a call, and ask us for a quote.