What is an Electricity Tariff?

An electricity tariff is a schedule of fees or prices that relate to the receipt of electricity from a specific provider. Sometimes known simply as electricity pricing, the structuring of this type of schedule will vary from one country to another. In communities where there is more than one electricity provider authorized to offer commercial or residential services, there is also the chance that the exact price or tariff charged by each competing provider will vary slightly. Often, the price range for the electricity tariff is structured so that it complies with any local governmental agency charged with the oversight of utility pricing within that jurisdiction.

Several different factors help determine the electricity tariff or tariffs that apply in a given locality. One has to do with the cost of operating and maintaining the facilities generating the power supply. The raw materials and type of equipment used in the power generation process have a direct effect on the costs that the provider incurs while producing power for sale to consumers. Regulatory agencies often require that power companies provide detailed documentation regarding those costs of operation as a means of justifying a request for a price increase.

Along with the type of equipment and materials used to generate the power supply, the number of available customers within a given area may also impact an electricity tariff. In situations where much of the territory covered by the power company is sparsely populated, the provider will realize a lower return on each unit of power produced. In order to ensure the operation is profitable enough for the company to remain in business, government subsidies are often granted to offset the difference. As the population of the territory grows and the provider acquires more customers, those subsidies are sometimes reduced incrementally as the need for governmental assistance decreases.

In some areas of the world, seasonal shifts in temperature will also impact an electricity tariff. This means that during months when the weather is relatively mild and consumers require less power for heating or cooling, the rates may either increase or decrease, based on company policies and any standards set by local regulatory agencies. During months when weather conditions require heating and cooling, a similar shift in the pricing make take place, with some power companies reducing pricing due to the increased demand and others increasing the pricing for the same reason.

Another factor that can impact the electricity tariff is the type of customer that is served by the power company. In some markets, there is one pricing schedule for businesses and a different schedule for residential customers. A power company may also take into consideration the industry type of a given business when determining the rates or pricing that a business operation is charged. Typically, the goal of the provider is to establish an electricity tariff that provides the business with the greatest amount of profit, while still remaining in compliance with all laws and standards set by local regulatory agencies.