How electric companies make money and what kind of expenses theyhave?
April 102010
I guess I am trying to understand how an electric company makes profit in their line of business. Obviously, they have some sort of expenses and what they are? Can anyone help me understand this? Do these electric/energy companies depend on something or some products in order for them to provide energy.
A traditional power company generates power at power plants, sends it to towns over transmission lines, and distribute it to customers over 12,000 volt distribution lines. The largest expense is for fuel for the power plants, often 40% of the total. The second biggest expense is interest. Power plants cost billions of dollars, and power company has to borrow the money. The third biggest expense is maintenance, some times called operations and maintenance (O&M). O&M is the workers for the power company.
Power companies that sell stock, are regulated by state laws. The state laws allow power companies to charge enough to pay their debt, some times called allowable rate of return. State laws also allow the company to charge for fuel. This covers 95% of the cost of power. The key for a well run power company, is they can make it on the 95%
April 10th, 2010 at 6:00 pm
The make money by charging for electricity. Almost all homes and business use electricity, and they will have monthly bills to pay to the electric company for the amount of electricity they use.
The electric company’s expenses include making or producing the electricity (it doesn’t grow on trees), as well as maintaining and repairing the transmission lines, and such.
Most electricity is produced through mining and burning coal, and there are also a lot of nuclear power plants. Some companies are trying to branch out, and are building wind-turbine plants, and where it’s possible – damming rivers can produce a lot of electricity through hydro-electric power.
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April 10th, 2010 at 6:39 pm
They also need to buy fuel, pay people to man the customer service lines, run billing equipment, mail bills, run a website, etc. There are any number of "under the hood" expenses.
The cost of keeping up with regulations also eats into the money they collect from their customers.
In some states, the electric company is also required to purchase excess power from companies that produce their own. Large manufacturing plants may have their own power plants and produce power. If they do not use all the power they produce, they feed it back into the transmission system and the electric company is forced to buy it.
They also have the standard costs that any other large company has, HR, Payroll, Taxes, office supplies, mailings to shareholders, etc.
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Worked contract for an electric company for several years.
April 10th, 2010 at 6:48 pm
A traditional power company generates power at power plants, sends it to towns over transmission lines, and distribute it to customers over 12,000 volt distribution lines. The largest expense is for fuel for the power plants, often 40% of the total. The second biggest expense is interest. Power plants cost billions of dollars, and power company has to borrow the money. The third biggest expense is maintenance, some times called operations and maintenance (O&M). O&M is the workers for the power company.
Power companies that sell stock, are regulated by state laws. The state laws allow power companies to charge enough to pay their debt, some times called allowable rate of return. State laws also allow the company to charge for fuel. This covers 95% of the cost of power. The key for a well run power company, is they can make it on the 95%
References :