What are Your Electricity Charges Anyway?

Electricity charges in your utility bill are summarized in terms of energy and power. Your energy usage is measured in kilowatt –hours (kWh)or the amount of electricity you used during the billing period. The amount of energy is based on the power needed to run your electrical appliances and lights in kilowatts (kW) and the number of hours used.

Your electric meter measures energy use, or kWh, the same way as the odometer on your car tells you the number of miles you have traveled. Your meter measures KW or power similarly to your car’s speedometer, showing you how fast you are driving (miles per hour).

Here are some useful numbers that help get a feel for energy. A human climbing a flight of stairs is doing work at a rate of about 200 watts. A typical household incandescent light bulb uses electrical energy at a rate of 25 to 100 watts, whereas, Compact fluorescent lights (CFL) typically consume 5 to 30 watts.

To get a feel for energy as it relates to your house, take an electric heater with one heating element that might need 1 kilowatt (1,000 watts) for power. If it is operating at that power draw *constantly*, for say, four hours a day for 31 days (one month), its energy consumption for the month would be: 1 kW x 4 hrs x 31 days = 124 kWh. If your electricity rate is $0.10 per kWh, then the heater would cost you $12.40 per month to operate.

Time of Use Billing Option

If you are a high energy user, with more than 800 kWh per month, and you have the flexibility of shifting your electric usage, you can opt for a billing type called Time of Use (TOU), instead of the basic service charge billing.

TOU customers pay a higher service charge but a lower delivery charge than standard users. These customers will pay a higher kWh rate during peak demand hours (usually the work day), and less for off-peak hours, when the demand is lower. If you can shift about 80% of your electric usage to off-peak hours, you will most likely benefit from this structure.

The Different Parts of Your Electricity Charges

Schematic of T&D lines from generation to distribution

Take a look at the diagram above to see how electricity is generated and then distributed to the electric grid. Depending on the type of utility company you have (public, private or coop), the final amount billed for your electricity charges is a compilation of several charges.

Different utility companies will have different terminology to describe the following charges (why standardize - that would be too easy). But loosely, most bills will have a variation of the following terms and definitions:

  • A basic service charge for meter reading, billing and maintenance,
  • A tarrif surcharge to recover the taxes imposed on the utility by the state,
  • A sales tax,
  • An incremental state assessment surcharge which is usually a time-limited fee on behalf of the state, slated to end sometime in the far away future for most utilities (National Grid’s for example, will end in June 30, 2014),
  • Delivery charges regardless of the supplier
  • Delivery adjustment (could be an addition or a credit)which serves as a buffer between the actual cost and the forecasted cost of electricity supply
  • Transmission revenue adjustment which credits a tiny portion of the electricity charges back to the customer if the actual amount of transmission is lower than the forecasted amount for the month
  • Systems benefits charges which every resident pays into. support public policy programs, state energy efficiency initiatives that provide rebate and incentive programs, low income assistance, etc., and,
  • Electricity supply price which is the market price during the billing period- if you have your own supplier, then the price is what you agree upon with the supplier.

Depending on where you are and how plentiful resources are, electricity charges can vary greatly from utility to utility. Below is a table showing the average electricity charges in the different regions of the US.

Regional electricity charges in the USA

Find out how utility companies charge for your heating fuel

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