How Electricity Prices Are Determined?

How Electricity Prices Are Determined?

There are several factors that affect electricity prices in any area. The cost reflects how much the utility company has to spend in financing, maintaining and operating power plants. It has its regular expenses related to the staff and offices. It must recover all these costs and make a profit. The type of fuel used to generate power can be the main cost of electricity generation. Building a power plant requires lots of investment. The power company recovers this investment over several years. It has to pay back the loans taken from the banks and investors.

Electricity generating companies incur transmission and distribution losses. This loss occurs because some amount of electricity is lost during the transmission phase. The company has to recover these costs from its customers. The government regulations affect how much price the utility company charges for electricity. It has to pay taxes and other charges to both local and state governments. All these factors determine how much electricity costs in an area.