Electricity is generated using a variety of resources. In the United States, the majority of electricity is produced using traditional sources such as natural gas, oil, coal and nuclear. More recently however, the percentage of renewable resources such as solar and wind have begun to grow as a source of electricity. In order to effectively compare electricity kWh prices from electricity providers, it’s important to understand some of the fundamentals of the market such as how electricity is priced and what portions of your bill you have control over.
The share of natural gas in the energy mix has dramatically increased over the last two decades. A large driving force behind this increased natural gas is for electric generation. Electric power plants that were previously fueled by coal or nuclear power have transitioned to natural gas as it is a cleaner-burning, competitively priced, and efficient fuel. According to the U.S Energy Information Administration, in 2016, about 33% of the electricity came from natural gas utility generation.
Multiple entities are involved with delivering natural gas from the point of production to your business. Production companies explore, drill and extract natural gas from the ground. Transmission companies operate the pipelines that link gas fields to major consumption areas, and distribution companies are the local natural gas utility that delivers to the customer.
Average natural gas prices can vary greatly between states and cities. Some of the variance in prices can be contributed to the distance a consumer is from the areas producing natural gas, transmission pipeline capacity, customer demand, and state regulations. Like other supply and demand situations, there are many additional factors that cause prices to fluctuate.
The electric and natural gas markets can seem complex. Power Management strives to work as your partner, keeping you up to date and informed about changes in the market that could affect your energy management strategy. Detailed account analyses, constant communication, and weekly energy market updates are a few of the ways we work to accomplish this.
The price of electricity can fluctuate based on changes in natural gas and oil prices, weather, political events and other economic factors. In order to make an accurate comparison between the offers you receive Power Management works on your behalf to ensure you understand the choices and get fair and competitive rates.
These are charges from your utility to transport electricity and natural gas to you. These costs help to maintain the grid and deliver energy from its point of generation to your business. Other surcharges and administrative fees may also appear in this area of the bill. Your utility will deliver electricity and natural gas to your business regardless of your choice of supplier and will continue to read your meter, care for the poles and wires, and restore power when there is a service interruption.
This portion of your bill covers the cost to generate the electricity and natural gas you use and is charged to you by a provider/supplier, or your local distribution company if you are on default service. The supply portion of your energy bill is the part of your service that you are able to shop for. Your agreed upon rate will appear on this section of the bill along with the amount of energy that you used during your billing period.
ISOs and RTOs are organizations that control and monitor the use of the electric transmission system by utilities, generators and marketers. ISOs and RTOs function under the guidelines that they will operate a competitive market and manage reliability of the transmission grid. They are tasked with providing efficient, fair and open transmission access and promote infrastructure development.
An ISO is a non-profit organization that provides fair and open access to power, independent of the transmission owners and the customers who use its system. They manage the flow of electricity throughout their regions to ensure it’s produced in sufficient quantities, has constant availability and transmitted where it needs to go when it’s needed. They also provide system planning, studies, and analyses information to policymakers, stakeholders, and the general public in order to ensure there will be long term reliability and electricity needs will be met for future generations.
RTOs typically perform many of the same functions as ISOs, but cover a larger geographic area. The terms ISO and RTO often used interchangeably. While RTOs also provide access to the transmission network they must meet specific FERC regulations regarding transmission planning, system congestion and expansion.
List of U.S ISOs and RTOs
The cost to supply electricity varies minute by minute. To minimize the risks of purchasing during extreme conditions, most consumers consider future products so they do not experience these daily price fluctuations of the spot market. Future products are less volatile and provide more price certainty for electricity over the specific time period, at a price negotiated on the contract date.
When evaluating supply contracts, it’s important to understand what is or is not included to accurately compare electricity kWh prices. Depending on the supplier, certain charges may be included as part of the price quote, or they may be passed through as separate charges on your bill. A rate that does not include all cost components could appear lower, however in the long run could be more expensive. It’s important to work with a company like Power Management who is well versed in the contract language and evaluating these various supplier agreements regularly in order to better educate you regarding which product, offer and electricity providers will work best for your business. In addition to the pricing components, considering your company’s risk tolerance, business goals and need for budget certainty can help determine if you are more comfortable with a fixed or variable pricing structure.
Because demand for natural gas fluctuates daily and seasonally, underground storage of natural gas is an integral component of the nation’s energy system. The natural gas storage reserves enable utilities to offer consumer reliable service and the opportunity for more constant prices throughout the year. Storage of natural gas during periods of low demand helps to ensure that sufficient supplies of natural gas are available during periods of high demand.
Natural gas storage reports are released weekly and provide information about working gas volumes held in underground storage facilities at the national and regional levels. Changes in these numbers primarily reflect net withdrawals or injections for the week and can have an impact on natural gas prices.
For the most part, gas is injected into storage during periods of low demand and withdrawn from storage during periods of peak demand. The markets monitor these figures because inventory data can indicate supply and demand trends. If the increase in natural gas inventories is more than expected, it implies either greater supply or weaker demand; likewise, if the increase in natural gas inventories is less than expected, it implies either weaker supply or greater demand. The EIA report shows the net change of overall natural gas inventory levels as well as the inventory levels in regions for the current and previous week. It also provides inventories for the same period last year and the five-year average for historical comparison in order to compare natural gas prices.
The NYMEX (New York Mercantile Exchange) is a commodity futures exchange widely used as a benchmark price for natural gas. Natural gas futures prices are based on delivery at the Henry Hub in Louisiana. Depending on your location, you may have an additional basis cost for transportation. Natural gas futures allow market participants to protect their buying positions in order to manage risk in the volatile natural gas market. Below you will find a chart with the NYMEX settlement from 2005 to date which is a vital component to the overall price your business will pay for natural gas: