This is part one in a two part series on how to read residential electric bills. For part 1, click here.
What are all these fees & charges?
The account summary of charges on an electric utility bill contains a list of items with varying rates and cost per rate related to electric usage. As mentioned in Part 1 of How to Read an electric Utility Bill, the reason for these varying items is due to new deregulations laws that allow different utility companies to provide different aspects of utility services, instead of just one monopolizing company. As a result, customers now have more control over their service but are consequently more confuse about what is being charged. We do not believe homeowners should pay for their electric bill blindly, so to help educated those in need of a little clarification, we have provided a two-part guide on how to properly read an electric utility bill.
Electric Utility Bill Charges
The varying rates and cost per rate often apply to the same number on a utility bill. Hence, at a glance a homeowner may think they are being double charged, but that is not the case. There are different rates for different types of charges. The following is a list of those charges that are commonly seen on an electric utility.
For other items listed on an electric utility bill that are not pertaining to cost or rates, please read “How to Read an Electric Utility Bill (Residential) – Part 1“
1. Service Charge
The first listed rate is a fixed monthly cost that utility providers charge a customer for the service of the account, such as metering and billing (which can be charged separately as well). Hence, this charge is often labeled as the Service Charge. It is crucial to understand that this item is non-adjustable. Weather a customer uses 1,000,000 kWh or 0 kWh, the service charge is applied at the same cost as it has been for every billing period. (This is frequently the reason why many solar systems provide a 100% offset to the electric utility usage but not to the electric utility cost, as a portion of the bill must be paid for regardless of electric usage.)
2. Supply Charge and Delivery Charge
The two major aspects of an electric utility service are distribution and supply.
Supply is the amount of electricity generated for a home. The utility company measures electricity at a rate of kilowatts-hours (kWh) then applies the rate to a cost per rate, which determines the Supply Charge. Simply put, you pay for what you use.
Distribution is how electricity is delivered to a home. The utility company sends electricity across thousands of miles by wires, pipes, power lines, etc. The utility company does not measure the distance electricity travels nor the time electricity takes to travel but instead, once again, takes the measured electricity at a rate of kWh and applies the rate to a second cost per rate, which determines the Distribution Charge. This charge may also include additional cost for tariffs and government-mandated programs.
It should be noted that the electricity supplied is a commodity; meaning it all comes from the same place regardless of the supplier with no difference in the product. Hence no one company has better quality than another company. The electricity distributed, however, can vary based upon a number of circumstances such as the materials that are used to deliver (e.g. higher voltage power lines).
Because of government restriction and the large amount of infrastructure required to establish services, the utility company responsible for distribution is determined by the location of your home. However, the customer has the capability to choose the company responsible for supply. If you are a homeowner who has not chosen a supplier, than that just means your distributer is also your supplier, which is a common occurrence.
3. Off-Peak Hours and On-Peak Hours
Supply and demand is a basic concept that businesses strive on. When there is more demand, the supply rises; when there is less demand, the supply lowers. In the case of energy consumption, demand changes at different times a day yet supply is constantly provided. Utility companies take advantage of this by implementing peak hours.
During off-peak hours, cost per kWh is set at a lower rate because the number of people using electricity is usually low, like in the middle of the night. But during on-peak hours, cost is set much higher due to higher demand, like during the middle of the day when residents are doing laundry, washing dishes, blasting the AC, all with the TV on.
Peak hours are not as common in New York in New Jersey as they are in other states like California. But for those areas on the East Coast that do have peak hours, they can easily be changed at the request of the customer.
Note: If you are interested in solar power and have peak hours applied to your bill, it is highly recommended you contact your utility provider to change your rates. Otherwise your solar system may not work as efficiently, especially if the on-peak hours are during nighttime when the system is not generating.
4. Tax Surcharge
You cannot avoid taxes no matter how much you wish you could. Unfortunately, the sale of utility services has a tax too and it is applied to rate at, once again, the amount of kWh used.
By collecting these rates together, you are able to determine your total cost per kWh.