We get it. Electric rates can be confusing.
In Michigan, electric rates are affected by many factors, including the realities of energy generation, Michigan’s aging infrastructure, and our state’s commitment to sustainability.
We want to help you better understand how electric rates work and what it takes to keep energy reliable, affordable, and fairly priced for everyone. So over the next several weeks, we’ll be exploring the ins and outs of electric rates in the series, “What You Need to Know about Electric Rates.”
Let’s get started!
Think of rates and bills like the price of gasoline and the total you pay monthly to fill your car’s tank. At the moment, the average price for a gallon of gas in Michigan is around $2.50. So when you pull up to the pump, the $2.50 you’re paying is the current “rate” for gas. However, the total you pay each month to fill up your car is your “bill.”
If Michigander A drives a “land yacht” and Michigander B drives a hybrid, Michigander A will pay much more over the course of a month for their “bill” compared to Michigander B. This is the same with electric bills. Think of a giant, poorly insulated home with many appliances as the land yacht in comparison to an energy-efficient home as the hybrid — those bills are going to be quite different even though both households pay the same rate.
Just like the price of gas, the price of electricity changes continually due to a variety of factors — the cost of fuel, the cost of maintaining the electric system, the cost of government regulation, the time of year, and more. When Michiganders use more energy, like when temperatures are drastically low, rates tend to be higher. Energy rates can even differ according to time of day. If you’re using energy during “peak” hours (in the summer, 2:00 pm to 6:00 pm; in the winter, 7:00 am to 11:00 pm), the rate you’re paying will be higher than at other times.
Electricity is unique among commodities. It can’t be stored efficiently, so it must be produced and transmitted precisely when it is needed. Electricity use fluctuates all day and all night, so electricity generation and the electric grid must be flexible enough to adapt quickly from periods of low demand to periods of high demand.
This complicated process is called “load balancing,” and it literally is a minute-to-minute balancing act. When electricity use across the state gets high (also known as peak demand), the cost of generating and delivering electricity also increases, so rates are higher. When electricity use decreases, the cost also decreases.
One of the most important ways you can take control of your energy costs is to cut down on your energy use during peak times and make sure you’re using the energy you need during those times as efficiently as possible.
Check back for our next blog that will explore who determines electric rates and what those rates pay for.