Understanding the power system

Electricity is a manufactured product that is generated in real time—with water, wind and sunlight or by creating heat with fossil fuels or nuclear fission. The energy, the actual electrons, is transmitted long distances along high-voltage transmission lines that connect directly to some very large customers, and to distribution networks that deliver the energy on to their customers. Because the electricity system has multiple moving parts, the cost of delivering electrons to your home, farm, or business consists of multiple components.

COST BUCKETS

The cost of electricity comprises four main types of cost:

  1. The cost of capital to construct long-lived infrastructure, including generation, transmission, transformation, distribution, and metering, and to purchase or invest in durable assets. This is the return on equity to investors.
  2. The cost of debt to finance capital investments, the return to lenders who help finance projects.
  3. Operating and maintenance costs, including taxes, salaries and wages, professional services, general and administrative expenses, as well as routine and ongoing equipment repair and maintenance.
  4. Fuel costs, including the cost of natural gas, coal, oil, biomass, the cost of fuel transportation and storage, and royalties, such as water rental payments.

ALL THE OTHER THINGS

There is another bucket of uplifts, surcharges, taxes, fees and rebates.

Hourly uplifts are the variable costs of operating the generation and transmission in real time, and to cover electrical losses that occur when power is transmitted over long distances. These costs vary—they tend to move with demand and higher prices—on an hourly basis, and recovered from customers based on hourly consumption.

Monthly (per bill) uplifts recover other system operation costs, such as paying generators to be able to start when the power is out, a service known as ‘black start’ capability.

A Harmonized Sales Tax of 13 percent is added to the total cost of electricity each billing period.

 

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