How Are Electricity and Gas Bills Set? The Structure Behind Utility Rates — and What a 'Freeze' Means

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Electricity and gas rates aren't prices companies set at will; they are 'utility rates' the government has a hand in setting. Because everyone pays them every month and they weigh heavily on inflation, they are decided by weighing cost and policy together.

Electricity — Total Cost Plus a Fuel-Cost Pass-Through

The base of an electricity bill is the 'total cost' of generating and delivering power. Added to that is a fuel-cost pass-through: when generation-fuel prices (coal, LNG, etc.) rise or fall, that is reflected in the rate. But quarterly and annual adjustments are capped to limit sharp swings. The final rate is calculated by the power utility and then goes through consultation and approval by the government (the energy and finance ministries).

City Gas — Raw-Material Cost Plus Supply Cost

A city-gas bill splits into the 'raw-material cost' of imported LNG and the like, and the 'supply cost' of getting it to each household. The raw-material cost is adjusted periodically with import prices and the exchange rate; the supply cost reflects pipes, labor and so on. This, too, is decided and approved by the government.

What 'Freezing' a Rate Means

A freeze means 'even if there are grounds to raise the rate, leave it as is for now.' The aim is often price stability. But if cost stays above the rate for long, it can pile up as utility losses or unrecovered charges — so a freeze doesn't 'erase' the burden so much as 'defer' it.

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In one line — electricity and gas rates are set from 'cost plus fuel-price changes,' then approved by the government. A 'freeze' pins the rate down despite reasons to raise it; it helps inflation, but the gap with cost lingers somewhere.