LakePoint Energy is not only committed to helping its customers manage but also to understand the many variables that affect the price of electricity.   The energy marketplace can be confusing to navigate for novices and seasoned customers alike.  Good information is key to a customer being able to make a good energy decision.  As a leader in the industry, LakePoint Energy believes that customer education is mission critical in the energy market and that there is no question so basic that a client should not ask us or so sophisticated that that we should not be prepared with a response.


Basis of electricity rates

Electricity prices can and do vary within a single region or distribution network of the same state.  In a standard regulated monopoly markets, electricity rates class of electricity customer can also vary by time-of-day or by the capacity or nature of the supply circuit; for industrial customers, single-phase vs. 3-phase, etc.   In markets that enjoy deregulation, suppliers must compete against other suppliers in the market on price for electricity based on a customer’s usage, the manner of consumption and the geographic footprint in which the customer is located.

What is a Kilowatt hour (kWh)?

  • A kilowatt hour (kWh) is the unit of measure that electricity is billed and is the industry standard.   One kilowatt hour is the amount of electricity needed to light a 100-watt bulb for 10 hours.  When customers receive their electric bill, it identifies the number of kilowatt hours of electricity that the customer used that month, along with the amount per kWh that the customer is paying for each kilowatt hour of electricity for that billing period.


Factors that impact electricity prices

Even in the face of deregulation, there are numerous factors that can and often do impact the price that the market demands for electricity.  On such factor is that to generate electricity, other energy sources must be consumed.  Electric suppliers use low-sulfur coal and nuclear power to generate most of the electricity customers use in the United States, but there are is also a trend to include renewable sources, such as wind and biomass to the  mix of energy used in the generation of electricity.  As a result of the use of these companion energy sources, fluctuations in the cost of coal, gas and oil directly impact the cost to produce electricity.  These resources are commodities that are traded on the open market daily and whose price, as a result changes and fluctuates in real time.

Another factor impacting electricity pricing is the time of day and duration of customers’ energy use.  The costs for both generation and delivery of electricity go up in periods of very high usage, especially if that high usage occurs during only a fraction of the year.

Weather conditions also directly impact the cost that consumers experience with electricity.  Nationwide, weather-related events, such as storms, high winds and tree damage are the chief causes of disruption in electricity service, large scale power outages and extraordinary repair expenses.  Each and every one of these large scale weather events has a direct economic impact on the price consumers pay per kWh of electricity.

What is price volatility?

Price volatility describes how quickly or widely prices can change.  The energy industry  refers to this in terms of electricity and/or natural gas supply prices as they relate to consumer demand.


Electricity price forecasting is simply the process of using mathematical models to predict what electricity prices will be in the future.  Forecasting is used by suppliers and outside consultants to guide price driven decisions for their companies and their clients.

Universal driving factors

In addition to the basic production cost of electricity, electricity prices are ultimately set by the age old principal of supply and demand.  Everything from salmon migration to hurricanes can affect current and future power prices. However, when forecasting those prices there are some fundamental drivers that are the most likely to be considered and a well-seasoned energy consultant can guide a business customer through the maze of energy decision and ensure that they have selected the right supplier, for the right term and at optimal pricing.

What causes price volatility?

Energy prices fluctuate based on changes in supply and demand. When energy supply increases, prices tend to go down and when there is a shortage, prices go up. When demand for energy increases, prices increase and when it decreases, prices tend to fall.

The following factors impact supply and demand and contribute to price volatility:

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Extreme weather conditions - Extreme hot or cold temperatures will increase energy demand, driving costs up. Likewise, extreme weather conditions such as hurricanes can disrupt supply and also elevate costs.

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Economic conditions - Growing economies with increased infrastructure demands drive up energy demand and costs. Poorly performing economies often result in reduced demand and lower costs.

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Availability of supply - The majority of the energy we use is generated from fossil fuels such as coal and natural gas. This is generally the cheapest form of energy generation. When there is a shortage of these fossil fuels, other more expensive forms of energy generation will need to be used resulting in higher energy prices.

How do different energy products help control price volatility?

Variable rate plans mirror market rates.  As such, customers on these plans are exposed to market price volatility. A variable rate plan is ideal when rates are relatively stable or expected to decrease.

Fixed rate plans offer customers a set rate for their commodity supply over a period of time. These plans provide protection from market price volatility as your rate is fixed and not affected by changes in commodity prices.

What does the market look like today?

Commodity supply prices differ by region and face their own market conditions, production challenges and transportation methods. 


What do the charges on your Energy bill mean?

Rates for business customers who purchase electricity have two main components:

1.           Power Supply Charges – The Power Supply Energy Charge represents the cost to generate the electricity you use, including the cost of fuel and the costs related to owning, operating and maintaining power plants.

2.          Delivery Charges -The Distribution charge represents the costs to deliver electricity to your business across a utility’s power system, including maintenance of that system