Electricity Markets

Electricity deregulation began in 1998. Since then, just 16% of all commercial customers in New England have exercised their right to choose a competitive supplier. On the energy bill that you receive from your local utility bill, one third of cost is the "delivery" or "transmission" of your energy by your local utility company. The other two thirds of your cost come from a supplier source, which is where we work to help clients achieve a competitive purchasing program that reduces your cost per kilowatt hour (kWh).

U.S. Residential Electricity Price

Across the United States, but most pronounced in New England, the ratio of annual peak-hour electric demand to average hourly demand has risen over the past 20 years. In New England, the peak-to-average demand ratio has increased from 1.52 in 1993 to 1.78 in 2012. In other words, the highest peak-hour electric demand for the year in 1993 was 52% above the hourly average level while in 2012 peak-hour demand had risen to 78% above the hourly average level.

This higher ratio translates into decreasing average utilization levels for generators in New England and other regions. Electric systems maintain sufficient capacity to meet expected peak loads plus a reserve margin. As the peak-to-average ratio rises, generators called on to meet peak-hour demand are running fewer hours and/or at lower output levels the rest of the year. Because energy payments are generator's primary source of revenue in regional transmission organization (RTO) systems such as New England's Independent Systems Operator (ISO), the rising ratio of peak-to-average hourly demand is likely cutting into generator revenues and increasing the importance of capacity market payments to generators.

Many Factors Impact Electricity Prices

Electricity prices generally reflect the costs to build, finance, maintain, manage, and operate power plants and the electricity grid (the complex system of power transmission and distribution lines), and to operate and administer the utilities that supply electricity to consumers. Some utilities are for-profit, and their prices include a return for the owners and shareholders.

Some key factors that affect the price of electricity include:

Fuels — Coal is relatively inexpensive while natural gas tends to be more costly.

Power plants — Construction and maintenance costs are greater for some kinds of power plants than others.

Transmission and distribution lines — Maintaining and using the transmission system to deliver electricity contributes to the cost of electricity.

Weather conditions — Rain and snow can provide water for hydropower generation. Extreme heat can increase the demand for electricity for cooling.

Regulations — In some states, prices are fully regulated by Public Service Commissions, while in others there is a combination of unregulated prices (for generators) and regulated prices (for transmission and distribution).

Electricity Prices Are Usually Highest in the Summer

The cost to generate electricity actually changes minute-by-minute. However, most consumers pay rates based on the seasonal cost of electricity. Changes in prices generally reflect variations in electricity demand, availability of different generation sources, fuel costs, and plant availability. Prices are usually highest in the summer because more expensive generation is added to meet the higher demand.

Electricity Prices Vary by Type of Customer
Prices are usually highest for residential and commercial consumers because it costs more to distribute electricity to them. Industrial consumers also use more and can take their electricity at higher voltages so it does not need to be stepped down. These factors make the price of power to industrial customers closer to the wholesale price of electricity.

U.S. power generation over the past three months (December-February) is estimated to total about 5% more than generation during the same period last winter, primarily because of the much colder weather experienced in the eastern United States. EIA estimates natural gas-fired generation in the eastern United States (Northeast, Midwest, and South Census regions) accounted for 23.3% of its total generation last month compared with 25.3% in February 2013. Power generators in the West census region have not been affected as much by natural gas costs, and the region's share of total generation fueled by natural gas this winter has remained at levels similar to last winter.

U.S. Electricity Consumption

Much of the increased electricity demand this winter was driven by the residential sector in the eastern United States, where retail sales for the period of October through February were an estimated 9% higher than last winter. U.S. commercial electricity sales grew by about 3% this winter, while industrial sales fell by about 1%. For all of 2014, EIA forecasts residential electricity sales will grow by 1.2% and commercial sales will grow by 0.6%. Industrial electricity consumption is expected to rebound later this year, growing 2.8% for all of 2014.


eia Source: Short-Term Energy Outlook, March 2014