Understand Your Electric Bill
The Galvin Electricity Initiative’s vision of a Perfect Power System includes giving all electricity consumers an easy way to manage their power use and electric service. Under this system, electric bills will be highly personalized, tailored to meet the individual energy needs of each consumer. Until then, your electric bill will look different depending on where you live and the utility that supplies your power. What most of these bills have in common is that they contain information that can help savvy consumers save money on their electric bill.
Below are some of the types of information that may appear on your electric bill and why it pays to know about them. Bear in mind that utilities may not use the same terms to describe items on the bill.
Rate schedule or rate class: Utilities generally charge different prices per kilowatt hour of electricity used for commercial and residential customers. Many utilities have a variety of rate structures within those categories. For example, some utilities charge a higher rate when you go over a certain set usage base. Check with your utility to see if you might, for example, qualify for a lower rate or a fee waiver based on family income.
Usage: Your overall electric bill is based on the number of kilowatt hours of power you used during the billing period multiplied by the rate you pay per kilowatt hour.
Within that usage charge you are paying for:
- Generation — the costs associated with production of electricity.
- Fuel — this may fluctuate monthly depending on the cost of the fuel. For example, if natural gas prices go up so will your bill if you use the same amount of electricity.
- Transmission — the cost of delivery of electricity over high voltage power lines from the generation facility to your electric utility.
- Distribution or delivery — the cost of moving and final delivery of electricity to your home.
Whether or not each of these charges is broken out on your electric bill depends on where you live. In states that have opened the retail electric market to competition, most bills will be “unbundled”— that is broken down to show exactly what you are paying for. In some states, you may even receive two separate bills — one for the cost of generation, one for delivery. If you live in one of these states, you can use this information to compare your electric service costs to those of other retailers on the market. Most state regulatory agencies or public utilities commissions have this information available on their Web sites.
If your state has not opened the lines to retail competition, all these costs may be simply attributed to “usage,” or may be called, for example, a “base rate.”
In addition to these charges, you may also be paying for:
Demand charge: This may show up as its own line-item in a residential bill or it may be wrapped into another section such as generation or customer charge. Business consumers virtually always pay separate demand charges. Whether you see it or not, however, you are paying it. Demand charge is supposed to cover the cost associated with having enough capacity to meet each consumer’s need when that need is highest. It is calculated based on top energy demand in any half hour during the billing period. If your utility has a residential demand charge line item you may be able to save money by spreading out your electricity use over the length of the day — for example, running the washing machine at night when the air-conditioner is off. On a community scale, if enough people lower their peak demand needs consistently, the utility may be saved from having to invest in new capacity — an investment that would be ultimately paid for by consumers.
Stranded costs: When wholesale and retail electricity markets opened, many states negotiated deals with the utilities to cover their potential losses. These may be called “transition charges.”
Fixed, base, customer or commodity charge: These cover the utility’s fixed costs such as labor, equipment, return on investment, etc. Some companies simply roll these costs into usage or generation. Others may charge this on a sliding scale based on usage so the cost can vary monthly.
Payment Options
Dynamic pricing or time-of-use pricing: On summer afternoons when everyone wants to run an air-conditioner, power costs more than it does at 3 a.m. in the spring when demand is substantially lower. To help consumers manage energy use and bills, some utilities supply customers with detailed charts that show when they are using energy and how much it costs at that time. In such cases, these utilities likely offer customers the option of paying based on the price of the energy they use at the time they actually use it. So those consumers who want to save on their electric costs could, for example, do laundry at off-peak hours when demand is lowest and therefore electricity least expensive.
Most utilities, however, simply lump all the usage together and essentially charge the average cost over the course of the billing period. However, a 2005 federal law now requires that if you ask for it, utilities must offer a way for you to see when demand, and therefore electricity, costs are higher and lower, and a rate structure that lets you pay for exactly what you buy. The law also instructs state public utility commissions to study whether it would be cost- and energy-efficient to require utilities to provide time-of-use metering to all customers, whether or not they ask for it.
Average payment, budget billing or balanced billing: Some utilities will allow customers to pay an average cost every month rather than for the exact amount they used. This won’t save money over the course of the year but it can help you forecast and manage your budget more easily than if you were paying radically different bills each month.
