Electricity Rate Components

Electricity bills are broken down into two main charges: utility and supply. Utility charges come from individual tariffs, which you can learn more about on our blog, Understanding Utility Tariffs. If you are currently shopping, the supply portion of your bill is dictated by usage and your supply rate. The supply rate has three main components: energy, capacity, and ancillaries.

Energy makes up the largest portion of your rate and is based off the electricity futures traded in the commodities market. For example, if your rate was $0.0560 per kWh, energy may make up about $0.0370 per kWh or 65%. The exact energy rate can vary from supplier to supplier, due to their different hedge strategies, contract term length, and start date.

Capacity is the second largest component at about 25% of the rate and varies between customers as well. Capacity prices are decided through auctions, which are organized by the regional transmission organization (RTO). Capacity auctions are RTOs way of securing electricity capacity for future use. A customer’s specific capacity costs will be set by a calculation including the whole sale rates and the client’s usage and demand patterns.

The final piece of the rate is ancillaries, which makes up the remaining 10%. This includes supplier and broker commission as well as other minor costs incurred by the supplier. In a fixed price product, these components should all be included and fixed for the term of the contract. Understanding what should be included in your supply rate as well as what is driving costs can help you make a more informed decision the next time you are shopping for a new electricity supplier.