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Questions about how prices are set for electricity? Here’s what you need to know.

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We get it. The price you pay for electricity can be confusing.

In Michigan, electric prices are affected by many factors, including energy generation, Michigan’s aging infrastructure, and our state’s commitment to sustainability.

We want to help you better understand how electric prices work and what it takes to keep energy reliable, affordable, and fair for everyone. Over the next few weeks, we’ll be exploring the ins and outs of electric prices in the series: “What You Need to Know about Electric Prices.”

Let’s get started!

ELECTRIC PRICES VERSUS ELECTRIC BILLS

Think of prices and bills like the price of gasoline and the total you pay monthly to fill your car’s tank. The average price for a gallon of gas in Michigan is around $2.37. However, the total you pay each month to fill up your car is your “bill.”

If “Sally S.” drives a gas guzzling large truck and “Suzie Q.” drives a hybrid, Sally will pay much more over the course of a month for her “bill” compared to Suzie.  This is the same with electric bills.  Think of a giant, poorly insulated home with many appliances as the large truck 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 price.

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.

THE REALITIES (AND COSTS) OF MEETING DEMAND IN REALTIME

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 energy 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), such as on extremely hot days when people crank up their air conditioners, 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.

STAY TUNED FOR MORE PRICING INFO

Check back for our next blog that will explore who determines electric prices and what they pay for.  You also can check out DTE Energy’s animated bill, which explains electric and natural gas pricing, at dteenergy.com/price.

 

A version of this post first appeared on the Alliance for Michigan Power blog.