Nearly 80% of Americans don’t fully understand their electric bill, and a whopping 90% don’t know the rate they pay per kilowatt hour. However, comprehending how to read an electricity bill is very important, especially if you’re considering a switch to solar power. In this blog, we’ll explain the most common elements found on a typical electric bill to help you make an informed decision.
How to Read kWh on an Electric Bill
Knowing how to read an electricity bill starts with an understanding of kilowatt hours (kWh). Every appliance, light, and electronic device in your home consumes electricity, which is measured in kilowatts (kW).
The total amount of energy your home uses is calculated using kilowatt hours, which are units of absolute energy usage that measure the total amount of electricity something generates or consumes.
The Nitty Gritty
Kilowatt hours factor two measurements together: speed (kilowatt) and time (hours). The speed portion measures how quickly electricity is used, and the time portion measures how long that electricity is consumed at that speed.
You can think of a kilowatt hour as the amount of electricity used by ten 100-watt lights that are left on for one hour. Alternatively, you can compare it to the amount of energy a one kilowatt appliance will consume if it runs for one hour. To calculate the kilowatt hours a device uses, simply multiply its wattage by the number of hours you’ll use it and divide by 1,000.
Ultimately, understanding how to read kWh on an electric bill can help you save money and cut back on waste, therefore lowering your overall costs.
Potential Energy Rate Types
Most Americans pay between 10-20¢ per kilowatt hour, but this varies widely depending on the type of energy rate you have. We’ll review five of the most common rate structures below.
1. Demand Rates
Demand rates are additional fees that are tacked onto what you pay per kilowatt hour if you consume energy during peak hours.
2. Fixed Rates
As the name suggests, fixed rates are predictable and easy to calculate because they don’t change. You’re charged a standard rate per kilowatt hour regardless of when you consume electricity.
3. Tiered Rates
With tiered rates, you’re charged one price per kilowatt hour until you meet a certain threshold. After that, your rate increases for any additional kilowatt hours consumed.
4. Time-of-Use (TOU) Rates
If you choose time-of-use rates, the amount you pay for electricity varies depending on when you consume it. You’ll typically pay more during peak hours and less during times when demand is lower.
5. Variable Rates
Variable rates are subject to change based on predefined factors, such as the time of day or time of year. They may also follow a tiered structure where you pay a lower rate to start and a higher rate once you reach a certain consumption threshold.
Electric bills typically follow one of two structures: monthly or budget. With monthly billing, you receive a bill every month (cycle) for the kilowatt hours you used at the prevailing rate.
With budget billing, the utility divides the total number of kilowatt hours you consumed last year by 12 to determine an average monthly cost. You’re then billed that amount every month, regardless of your actual consumption. This allows you to spread your total cost out evenly over a year, which can make it easier to manage your budget.
Your usage profile provides an overview of your energy consumption that can help you make adjustments and pinpoint ways to save on your electric bill. It typically includes the kilowatt hours used during that billing cycle, along with the amount consumed during the same month in the previous year.
Usage profiles also include your average daily usage and may include the daily temperatures in your home. You’ll see the date your meter was read, along with your current and previous electricity bill meter readings. The difference between these two figures is the kilowatt hours you’re billed for.
Delivery charges are fixed rates determined by your utility company that fund the transportation of electricity from its generation point to your home. They’re also used to maintain the infrastructure used during this process, like power lines and transformers. We’ll break down the three main elements of delivery charges below.
Distribution charges cover the use of local wires, transformers, and substations that deliver electricity to consumers through high-voltage transmission lines.
Generation charges are the monthly costs associated with the purchase and production of electricity that’s performed by utility companies.
Transmission charges fund the movement of high-voltage electricity from generation facilities to the distribution lines owned by utility companies. These fees are federally-regulated and typically apply to any electric distribution company, regardless of location.
Supply charges are determined by the amount of electricity you consume and the unique rate of each kilowatt hour. In most cases, your local utility purchases electricity from suppliers and passes those costs to you directly without making a profit.
In states with regulated energy markets, you can’t choose your supplier and are confined to the rate set by the utility. However, states with deregulated energy markets (like Maryland, New Jersey, & Pennsylvania) offer you the ability to choose your supplier. You can shop around for lower kilowatt hour rates and better terms, thereby reducing your overall supply charges.
Other Charges You May See
Depending on your state, there are a few other miscellaneous charges you might see on your electric bill. We’ll briefly explain each of these fees below:
- Consumer education charge. This funds ongoing education regarding your bill, energy efficiency and conservation, and how to shop for suppliers.
- Customer charge. This covers monthly costs for meter reading, billing, equipment and infrastructure maintenance, and advanced metering (if applicable).
- Energy conservation charge. This goes to state programs designed to help fund energy efficiency measures.
- Renewable energy charge. This funds state programs designed to execute renewable energy initiatives.
- State tax adjustment surcharge. This covers adjustments to various state taxes that may be included in your bill.
- Transition charge. This helps utilities recoup the costs associated with meeting any legal requirements surrounding the divestiture of power-generation facilities.
Things to Keep In Mind
There are a few important items to consider if you’re wondering how to save on your electric bill. For starters, you should know your hourly electricity consumption in addition to the daily and monthly usage included in your bill. This can help you reduce your overall use by identifying particular habits that are wasteful or unnecessary.
You should also divide your total monthly bill by the total number of kilowatt hours you consumed to see how much your power is actually costing you. And if you live in an area with a deregulated energy market, shop around for the supplier with the most competitive kilowatt hour price.