As you know, there are multiple factors which impact the cost of electricity. Some of the largest factors sit outside of the power district’s ability to control. In this article, we will be covering four of the factors contributing to the wholesale cost of electricity: fuel prices, extreme weather, infrastructure and equipment costs and energy policy and regulation.

Fuel Prices. The cost of coal, natural gas and oil are contributing factors. In some cases, these are stable costs yet in others these fuel prices fluctuate based on supply/ demand, transportation (rail, pipeline, etc). In the case of renewable energy such as hydroelectric, solar and wind the fuel itself isn’t costly but the cost to build the generating assets and the cost to operate the assets are the cost drivers.
Extreme Weather. When electric generation companies need to purchase power on the open market, weather becomes a driving factor of the cost. When the weather is temperate, it is not a driving factor of electricity costs. However, during extreme cold periods or extreme heat periods, the electricity costs can soar to unfathomable prices. In February of 2021 this unfortunately was the perfect scenario, the demand exceeded the supply of electricity and wholesale power costs went through the roof.

Infrastructure and Equipment Costs. In addition to the cost to generate electricity, the transmission of the electricity is costly. The large/tall metal framed electric lines are owned by a transmission operator as most of the taller wooden H structures. These transmission lines you can think of as the “interstate” or “highway” system of the electrical grid, traffic slows down or speeds up when getting on or off these “highways” – in the electric world this is known as substation transformers. Once the electricity is stepped down to voltage manageable by the electric distribution system (think Wheat Belt) we have our own infrastructure “county roads” and “streets” to get the electricity where it needs to go. Not only does the infrastructure (poles, wires, transformers and other power line equipment) cost money, the labor is highly specialized and therefore expensive. Additionally, the equipment needed to operate and maintain the infrastructure at all levels (“interstate”, “highway”, “county roads” and “streets”) is highly specialized and therefore expensive.

Energy Policy and Regulations. Every day local, state and federal entities are creating policies and regulations affecting the generation, operation and construction of electric facilities. Some of these policies are helpful and others are unfavorable in terms of contributing to the cost of electric generation and transmission.

Our wholesale power supplier is Tri-State G&T. One of the benefits of such organization is they help absorb the daily and hourly fluctuations in electricity cost. This helps us to set a rate for a year or multiple years at a time, even though the cost to generate and move electricity varies greatly hour by hour.