The cost of electricity is calculated by multiplying the price per Kilowatt-Hour (kWh) by the amount of electricity consumed. But how is the price per kWh calculated? Though it differs from one provider or plan to the next, the average price per kWh in New York continues to evolve over time along with market changes.
How does New York Compare?
The average 2014 retail price of electricy per kilowatt-hour is 19.40 cents in New York State, according to the US Energy Information Administration. New York ranks 50th for average retail electricity price per kilowatt-hour among 51 US territories, significantly worse than the national average of 12 cents per kilowatt-hour.
|State||2011 Average Price||2012 Average Price|
|District of Columbia||13.40||12.28|
New York's energy markets were deregulated in 1996 in order to help decrease the cost of electricity and gas. This increased competition and gave most New Yorkers the freedom to choose their own electricity provider. Unfortunately, though electricity competition often delivers lower prices, New York's outdated infrastructure has left prices per kilowatt-hour high above neighboring states. Because of aging equipment, the majority of New York's electricity price comes from delivery charges.
What Makes Up the Price of Electricity per kWh in the State of New York?
In essence, three main charges determine the cost of electricity per kWh: Delivery, or Distribution; Supply; and Taxes.
Also known as distribution charges, these include the cost of getting electricity to your home. Since your traditional utility will always cover this part of your service, this cost remains the same whether or not you switch providers. Your delivery charge can change on a monthly basis.
Supply charges vary based on whether you choose your traditional supplier or an alternative Energy Service Company (ESCO). These prices include the real market cost of electricity, as well as the overhead costs associated with doing business, like customer service.
Sometimes this part of your bill includes Market Supply Charges (MSC) which denote the market cost of electricity, as regulated by the New York Public Service Commission and the NYSIO.
These charges fluctuate based on the market price of electricity, and your utility's overhead costs.
According to the IPPNY...
Up to 70% of New York's retail electricity price per kWh goes toward Delivery, Taxes, and Regulations.
Your electricity tax rates vary based on where you live, and can include:
- Local Sales & Use Taxes, which can range anywhere from 2 to 7%
- Revenue Based PILOTS & Sales Tax – Some non-taxed jurisdictions are charged a fee to cover potential tax revenues
- Transit taxes
These charges are included in the cost of electricity per kWh, and are the same whether you choose your traditional utility or an alternative ESCO.
These charges vary based on your supplier, and can include:
- Efficiency and Renewables Charges, which cover the cost of improving electricity infrastructure.
- Merchant Function Charges, which cover administrative costs.
The below graph depicts ConEdison's electricity price per kWh breakdown, an average for Westchester county in 2013.
Fixed-Rate Versus Variable-Rate Plans
Both fixed and variable-rate plans have their advantages. With Fixed-Rate Plans, the cost of electricity per kWh is fixed for a period of time, as agreed contractually. Whether it be 3, 6, 12 months or more, consumers can benefit by locking in market rates at the beginning of their contract, and not have to worry about the volatility of electricity prices.
Under Variable Rate Plans, the price of electricity per kilowatt-hour can change every month, hour, or minute, depending on your contract. You then usually pay the average over each billing period. Prices may fluctuate due to changes in weather, demand, and other factors. The benefit of variable rate plans is that consumers can take advantage of price decreases.
Time of Use plans are a type of variable rate plan, where the time of day you use electricity affects your cost per kWh. With these types of plans, your provider will normally have a schedule including peak rates, when demand and prices are higher, and off-peak rates, when lower use delivers significantly lower prices. This can be advantageous to consumers who are able to shift their electricity usage to off-peak times and profit from huge savings.
Variations in Electricity Prices
Cost of Generation and Delivery
Demand can change the cost of generation and delivery, as increases in consumer use decrease available resources and overwhelm generation and transmission equipment. New legislation and policy can also affect costs, and so can aging infrastructure.
The cost to generate and deliver electricity can vary based on the weather. Often New Yorkers use more electricity in the summer, to power air conditioning units, and this spike in demand can increase the cost of electricity. Further, extreme weather events can damage generation and transmission equipment and increase the cost of getting electricity to the consumer.
Time of Day
During times of higher demand, the price of electricity per kilowatt-hour can be drastically higher than times of lower demand. This applies to all consumers on a variable rate plan.
How Have Electricity Prices Changed Over Time in New York?
Concerns about the high retail cost of electricity caused New York lawmakers to pass legislation in 1996 to open the electricity market to competition, in the hopes that this would help to reduce prices. Two years later, consumers begun to be able to choose their own provider, and inflation-adjusted electricity prices fell 16% by 2004. However, since then, New York's electricity prices have still remained far above the national average.
Inefficient and outdated technology is to blame for high retail electricity prices in New York. In mid 2014, the New York State Public Service Commission (NYPSC) approved the proposal Reforming the Energy Vision (REV), which will overhaul the New York electricity system. The legislation includes plans to decentralize the production of energy to cut costs and build efficiency, and focus on more price stable renewables. Consumers will also be more involved in their energy .
With more renewable sources of energy, modernized infrastructure, and even better informed consumers, NYPSC asserts that REV will reduce New Yorkers' retail electricity prices per kWh over time.
The Future for Prices per Kilowatt-Hour (kWh) in New York
Electricity prices per kWh in New York state are well above the national and regional averages. The largest proportion of local electricity bills comes from delivery charges, which are high because of system-wide issues. Luckily, recent legislation should deliver the innovation so desperately needed in New York's electricity infrastructure, and with it, an improvement in the price of electricity per kilowatt-hour.