Have you ever received an electric bill to find the energy rate went up by more than 200%? Don’t worry, you’re not the only one. This seems to be a common occurrence in the energy market. The energy market can be extremely volatile and victims that fall prey to these large fluctuations in prices tend to be those floating the market and not locked into a fixed rate product.
Texans know this all too well and have been victims to skyrocket energy prices more than once. The latest occurrence was the winter storm of 2021 that saw a blanket of ice cover the entire state. This is the first time in Texas history, that all 254 counties declared a winter storm warning. Energy prices during this time increased over 10,000% resulting in customers being charged thousands of dollars!
So, what are the factors that impact electricity rates? What can cause energy prices to move drastically in such a short period? Is it worth floating the market if you believe energy prices will fall? We will take a look at these questions and answer the most common factors that impact electricity rates.
Natural Resources
Some states are just more fortunate than others. Despite recent spikes in the energy market, Texans have grown accustomed to enjoying some of the lowest energy prices in the country. The state has an abundance of natural resources including natural gas and crude oil. According to the U.S. Energy Information Administration, Texas leads the nation in electricity generation, producing almost twice as much as Florida, the second leading state in electricity generation. The high supply has helped put downward pressure on energy prices.
Illinois is another great example of a state taking advantage of its natural resources to help push down energy prices. Illinois has the second-largest coal reserves in the nation just after Montana. Thanks to its landscape, the state has invested largely in wind power which constitutes the highest form of power generation from all renewable energy sources.
On-Peak and Off-Peak Hours
The time of day in which energy is consumed also has an impact on electricity rates. The hours of the day are generally separated into two categories – on-peak hours and off-peak hours. On-peak hours are from 7 am to 11 pm and are the time of day when energy demand is at its highest. Off-peak hours are from 11 pm to 7 am and are the time when energy demand is at its lowest.
On-peak hours will always represent the time when energy prices are at their highest. While off-peak hours will represent the time when energy prices will be at their lowest. This should be no surprise as most people during off-peak hours are fast asleep. Energy suppliers may offer energy plans that lock their customers into a fixed rate during on-peak hours while allowing them to float the market during off-peak hours when energy prices are at their lowest.
Seasonal Changes
Weather can have a major impact on energy prices. The two seasons that generally have the greatest impact are the summer and winter seasons. This may come as no surprise to some. If you live in the northeast then harsh winter storms that produce blizzards are not uncommon. This often leads to a spike in demand for energy which further leads to an increase in pricing. If you’re not locked into a fixed rate, then the rise in energy prices can be costly.
Summertime is another part of the year that can lead to an increase in prices. Hotter than expected summers can push up the demand for natural gas prices which in turn will put upward pressure on electricity rates. A large portion of electricity is generated by natural gas so natural gas prices are often directly correlated with electricity rates. A depletion in natural gas reserves brought on by high demand can be sure to negatively impact electricity rates.
Increase in Regulations
Unfortunately, the energy market is one of the most highly regulated sectors in the economy. These regulations come at a cost that is often pushed onto the consumers. An example of this is the Gross Receipts Tax (GRT) that is placed on energy suppliers. The energy suppliers simply pass this tax onto the customers as a separate line item on the electric bill. This is often the case with any added expense placed onto the energy suppliers.
Another example of a regulation that is having a major impact on electricity rates is the Renewable Portfolio Standards (RPS). The RPS is a set of regulations being put on energy suppliers requiring a set percentage of electricity sold in the state to be generated from renewable energy sources. The technology to generate electricity from renewable sources at competitive prices doesn’t exist yet. Energy suppliers often have to purchase Renewable Energy Credits (RECs) to meet the RPS requirement. This added cost is passed onto the customer in the form of higher electricity rates.
Protect Yourself from Fluctuating Energy Costs
Now that you know some of the factors that impact electricity rates you can start taking steps to protect yourself in this volatile energy market. Energy suppliers provide a variety of energy plans based on personal preferences. While some of these energy plans are designed to increase energy savings they can come at a risk. The most conservative energy plans are the flat fixed rate products. Fixed rates will lock in the energy price and protect the customer against future increases in the energy market.
Find a Qualified Energy Advisor
Locking in a long-term fixed rate may not be enough to protect yourself from a fluctuating market. Often is the case, once the fixed rate expires, the customer may be stuck paying a much higher rate. A qualified energy advisor will monitor the energy market daily and take necessary steps to minimize risk while maximizing energy savings.
At Electric Rate Select we know all deregulated electricity markets in the U.S. Our energy advisors have over 10 years of experience and will work closely with you to help cut down on energy costs. We do this by analyzing historical demand patterns to find the appropriate energy product that will maximize savings. We will continue to monitor the energy market on your behalf and fight for the recessions you deserve.
To find out more about our services reach out to us today! 1-855-920-2414
