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For millions of Americans, understanding their electric bill can feel like trying to decipher hieroglyphics. While electricity rates and policies vary from state to state and often from city to city, people everywhere have trouble understanding why they're paying what they do.
At the most basic level, consumers pay for electricity based on the amount they use over a specific period.
"Typically, for residential billing, it is kilowatt-hour based," said Robert Scott Frazier, a professor of biosystems & agricultural engineering and an extension specialist for energy management at Oklahoma State University. A billing period is typically about a month.
Using the kilowatt hour (kWh) as a starting point, you can start to decipher your electric bill to see if there's any room to save. Remember, each electricity bill is going to be different from the next.
Generally, there are a few main components to an electric bill: consumption, delivery fees, variable line items and taxes, although their names may vary. Your bill might say "distribution" rather than "delivery," for example.
The consumption portion of an energy bill, often called supply, refers to how much energy a household uses during the billing period, measured in kilowatt-hours. The rate you're charged "comes from the tariff or rate schedule, and that's open source," says Frazier. "You can call up your provider and get the rate schedule, and it'll tell you the cost per kilowatt hour."
The tricky thing is that the price of a kilowatt-hour can sometimes change depending on the time of day and the time of the year, but the rate schedule should lay that all out. You may also have a flat-rate plan, in which the cost of a kilowatt-hour is the same no matter when you use it.
Many bills contain energy use comparison charts or tables, so you can see how your energy use has changed over time.
Delivery charges account for the cost of bringing the energy to your home. Think of the costs for the wires, transformers and towers that are necessary to get electricity from the power plant to your house or apartment.
Delivery charges may also be tied to your consumption. For example, you might be charged one rate for every kilowatt-hour delivered up to 500 kWh and a slightly higher rate for every kilowatt-hour delivered after that.
In areas with deregulated electricity, your utility might only charge you for delivery while you pay a supply company for the electricity you actually use.
You're likely to find numerous line items and miscellaneous charges on your bill, too.
"There can be all sorts of little line items that'll differ between utilities," Frazier says. You may see something like a "purchase power cost adjustment," for example, which might account for yearly changes in the cost of power plant fuel your utility pays.
Utilities might also collect money to defray the cost of greening the grid, state-mandated energy efficiency programs, the reduced demand efficiency programs result in, improving power plants and low-income assistance programs.
You might also pay set costs for being connected to the grid at all.
The names of these charges are likely to vary by utility and could be unintuitive. Who knows what DSM Surcharge, LFCR EE or U20697 Deferral Surcharge means without Googling them? A quick trip through your favorite search engine will turn up an answer.
You're also likely to find a section on your bill laying out applicable taxes and fees. Some will be familiar like state or city sales tax, but you might find others that only appear on your energy bill, like fees that go to funding agencies that manage local energy transmission.
In a basic sense, the more energy you use the higher your bills will be, though other variables, such as how and where your utility produces energy, whether you're producing any on your own (via solar panels, for instance) and the specifics of your rate, play a role.
The more kilowatt-hours you consume, the higher your bill will be. Delivery fees, taxes, and other miscellaneous charges add to your power bill. Keep in mind that the rate you pay can be affected by when energy use occurs, too. Using more energy at peak times may incur heftier charges.
The most expensive time? Likely during the middle of the day in the summer, when energy demand tends to peak.
There are various types of billing that a utility may use, such as fixed rate, time of use, and others. Fixed-rate billing usually means that the utility is charging a household a flat rate for electricity, whereas time-of-use billing involves a variable rate, which can change throughout the day. Other rates might incorporate charges for moments of highest demand. If you have a choice, consider which best fits your lifestyle.
This should all be explained in your rate schedule, which is yet another reason why it's so important to have it handy, Frazier said. Time-of-use billing or other variable rates are ways to get consumers to raise or lower their consumption during certain parts of the day to help spread out demand on the grid. If you use energy when it's cheapest (usually at night), you may be able to lower your bill and boost your savings.
Are there ways to lower your energy bill, or even get it to zero?
"Hell yeah," says Frazier, but you may need to spend a lot of money to do it.
There are a ton of variables to consider, but solar panels can help reduce your reliance on the energy grid and operate as "negative appliances" by sending power back to the grid. That reduces your consumption and lowers your bill.
Frazier says that perhaps the best thing households can do to lower their electric bill is to figure out what's eating up most of their energy consumption. "The thing I always preach is the 80/20 rule: In your home, what is causing 80% of the bills? It's usually two or three things," he says. They tend to be the heating and cooling systems, water heaters, and lighting.
To wrangle those costs, he suggests investing in a smart thermostat to regulate temperatures, turning the temperature on your water heater down a bit and insulating your home -- perhaps even buying new windows and doors. While those might be big up-front investments, you could realize savings later in the form of lower energy bills.
