Energy Rates: What do We Pay For in Our Bills?

Not surprisingly, your energy rates are made up of many different charges (it's all in the fine print on the back of the bill, of course)...lots of tarrifs, and "standard charges" depending on the type of plan you are on. You can read about them on the bill as you are trying to fall asleep, or you can read them here, and fall asleep! Either way, I have to include this information in its own page for completeness sake (I would never be able to live with myself)...

Don't worry, it's not so bad. I will keep it brief and simple with:

Before delving into your energy rates, understand the terms used for power and energy in your bills.If you heat and cool your house with electricity, then your utility bill will only show kW (power) and kWh (energy) usage and all its related charges (and there are many). If you heat and cool via natural gas, then your utility bill will also have a section for gas usage either expressed in Btus, or in therms (the fuel portion) . In addition, if you buy liquid propane in rural areas (typically in the Northeastern part of the US), you also have access to liquid propane delivery by a private company.

Common Types of Power Generation
Your electricity can be generated from many different “fuels”. Coal, natural gas, or petroleum is burned by power plants to produce hot combustion gases or steam to spin a turbine’s blades to generate electricity.

Hot water or steam can also be created by a nuclear power plant, where a reactor using nuclear fuel splits atoms by neutrons, releasing heat and more neutrons (Chain reaction).

In recent years, renewable energy sources such as hydropower, biomass, wind, solar, and geothermal power have become more available, and affordable through different subsidy programs (governmental and utility rebates, incentives, and tax credits). These subsidy programs apply to large power plants as well as homeowners, but renewables still account for only about 7% of all electricity generated in the US. This may be anti-intuitive, but utility companies do promote individual power systems (photovoltaic systems, or small wind turbines) the type that can be mounted on rooftops or the owner’s property.

The main reason for this is that utility companies can defer or avoid the need for building more fossil power plants as demand for power grows, saving utility companies LOTS of money, regulatory red tape and real estate. The downside though is that the electricity grid is getting older and soon, we will have to upgrade the existing power grid to incorporate the transmission and distribution of “different” electricity (smart grid).

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Power Generation, and Delivery
Your utility company provides you with the transmission and distribution lines for your power. You have the option to shop for your own electricity and gas suppliers . This is the result of deregulation that came about in the mid to late 1990’s. This allows you to find suppliers that generate electricity using fossil fuels, renewable energy, hydro, or a mix. There are also suppliers that sell “green” electricity. Due to the rise in demand for green power in the past several years, many green power suppliers have become quite competitive and can frequently match rates from conventional power sources. Click here to go to, a company that finds the best utility rates for customers from traditional and green power suppliers in many states in the U.S.

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  • Demand Charges - Your utility company may impose a demand charge on your energy costs which increases the rate you pay for electricity during times of high demand (usually during work days). The electricity prices are also jacked up when the demand for cooling increases during the summer, and the power grid is overloaded,(often leading to "brownouts").

    Generally, electricity is charged according to a tier structure, where the more you use, the higher the electricity costs. To see if you are charged for demand, check your utility bill's electricity portion. There will be a separate portion itemizing your demand or power charges. This will be listed in Kilowatts or kW, not Kilowatt-hours or kWh which stands for energy used.

    If you are subject to demand charges, check with your utility company to see if electricity rates are lower for night usage. Very likely, if you run several appliances at the same time, you get bumped to a higher rate structure (which is calculated on 15 minute intervals at your meter). This also implies that you can lower your tier rate and utility bills by not operating many appliances at once (try scheduling or staggering your appliances, for example, run your dryer first, then dishwasher).

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