It makes sense that the more electricity and natural gas you consume, the higher your utility bill is, but why do the actual price of the gas and electricity jump around so much?
On one hand, the ‘pay for what I use’ principle is very simple: The more I use – the more I pay makes sense. For example, my natural gas heating bill is much higher in winter because.. well.. its colder in winter and I don’t own a Snuggie. The same can be true of electricity usage in the summer for air-conditioned consumers in Alberta. Some months I use more electricity, so I pay more. That’s totally understandable.
On the other hand, however, why does the wholesale price for these commodities, (take electricity rates for example) go from 4.405 cents per kWh in September 2017 to 10.051 cents per kWh in August 2018. I use the same amount of electricity, but one month i’m paying $56 more than the other. How can this happen?
The answer? Market prices.
Follow this link for a more technical explanation: http://www.auc.ab.ca/pages/energy-charges.aspx
Basically, the energy charge is determined through a wholesale market. A wholesale market is just like any market you are familiar with. (There’s one for electricity and another for natural gas.) The buyer in this case is called a utility retailer. They come to the market and buy the commodity in order to later sell to customers – you and me. Both the retailer and the customer hope for the lowest prices possible. Just as in all markets, the product price depends on how much there is in reserve and how costly it is to produce at the time. This cost does notinclude the price to deliver the energy to your home or business. Think blueberries. You can buy them cheaper when they are bursting off the bushes in the growing season, and they are costly when they aren’t. It is the same with Natural Gas and Electricity, but less seasonally driven than blueberries.
In the electricity department, for example, Alberta has mostly privately run electricity producers. They decide what plants to build and are responsible for operating them safely and efficiently in order to produce the electricity. There is wind, coal, solar, natural gas, hydro and other generating companies in our province. They are each responsible to comply with Alberta Utility Commission standards. These companies ‘farm’ the electricity and bring it to market for the retailers to buy.
It is the same idea for natural gas producers.
If the commodity is cheap to make, the price goes down. If there is plenty in stock, the price also goes down.
Let’s say there is a particularly cold winter. More natural gas would be burned to heat our homes and businesses. This would deplete the gas supply and drive the price of natural gas upward. What if there’s a tornado that takes out a power plant? That would drive up the prices also. If the Government decides to reduce coal-driven power, that limits the supply of power from those previously functional coal plants. Essentially, it’s a supply and demand market thing.
Whatever happens, Albertans can be assured their energy charges are at the best available prices if their prices are linked to this variable price spot market.
There are other factors that determine the price of energy I didn’t mention. Look for them on your energy bill. There are Transmission and distribution charges (T&D) which are the distributor’s costs for delivering the product to your home. A Carbon Levy (Natural Gas only) which came into effect January 1, 2018 charges $1.517/GJ on your natural gas bill. These are just two examples.
Knowing what causes your energy bill to fluctuate is useful for keeping calm when it’s bill time.
CHECK OUT olympusenergy.ca for a quote to beat your current retailer’s electricity and natural gas prices.