Having trouble understanding your electricity bill? If so, you’re not alone. We hear from many people who think every month, “what are all these numbers and why is my balance due so high?!”

Or maybe you think you know how to read your electric bill? Even so, you might be like many Americans who make several inadvertent but key mistakes.

Either way, we’ve got your back! Electricity bills can have a dizzying amount of numbers strewn across the page with units we rarely give thought to in our day-to-day. In a previous post, we explain these units and where your electricity comes from.

In this post, our mission is to demystify the electricity bill and make sure you are reading it correctly.

What Bill Are You Looking At?

First thing’s first, when it comes to understanding your electricity bill: you must make sure you are looking at the correct bill!

In some areas of the country, the electricity bill can come bundled with other municipal bills, like gas and water. In others, each energy source is managed by a separate entity which will send its own bill. If you live in an area that bundles utilities, remember your units of measurement for each energy type as you read through your bill. That way you can be sure that you don’t mix up or misunderstand what you’re being charged for:

What Monthly Billing Plan Are You On?

Another critical step in understanding your electricity bill is to understand whether you are being charged for the electricity you actually use each month or are on what’s often called a “budget billing plan.” Here’s the difference:

Monthly Usage

If you have this billing set up, you receive a bill every cycle (typically every month) charging you for the number of kilowatt hours (kWh) your household used over that period at the utility’s stated rate.

Monthly Budget

If you have this billing plan, your utility takes the number of kWh you consumed last year, assumes that you’ll use around the same amount this year and charges you a monthly average based on that assumption. With this type of billing plan, your utility essentially spreads out the total costs you pay for power over the course of the year so in typically high-consumption months you pay less, but in typically low-consumption months you pay more than if you have a monthly usage billing plan.

What Charges Are Making Up Your Electricity Price?

Your total electricity charge is often broken up into the many services associated with the steps of generating and transporting electricity to your home. Additional nuances to your electricity bill will arise if your utility uses any type of tiered service. It’s important to understand these components in order to identify opportunities for savings.

Common charges & Services

Most utilities break down your electricity charge include a number of different components. Three common services include:

  • Generation Charges – these are the charges from your local utility company (such as PG&E, or Duke energy) for the cost to generate the electricity that you consumed in the billing period.
  • Transmission Charges – these are charges from your local utility company for the cost of moving high voltage electricity to the lower voltage of the local electricity lines in your neighborhood.
  • Distribution Charges – these are the fees that your local utility company charges you to deliver the electricity through local lines into your home.

If you need a refresher on the electricity generation, transmission, and distribution processes, check out a previous in our Electricity 101 series.

How Much Electricity Are You Using Each Month?

Most electricity bills will show you how your monthly usage changes over the course of the year. They may even break out your daily use. This can cause confusion if you look at your electricity cost per day versus for the month. If you are tracking your electricity consumption using your own energy monitor, such as CURB Home Energy Monitoring System or Sense Energy Monitoring System, make sure the period over which you are measuring and assessing your usage matches that of your bill. Otherwise you might be comparing apples to oranges, which will get confusing if you’re trying to assess the effectiveness of your energy conservation or energy efficiency efforts. For most, tracking your monthly usage will be the best bet.

Tiered Billing Structures

Understanding your electricity bill, particularly the breakdown of your charges, may be a bit more complex if your utility uses a tiered billing structure. One type of billing structure is based on consumption. In this structure, your first 500 kWh may be on price, and then your 501st hour is a different price. If your utility uses this type of structure, you will see a breakdown of the number of kWh that you use in each tier. Individual utilities may also have individual incentive programs or charges specific to your state/region.

In this sample bill from PG&E, you can see an example of a tiered electricity usage structure. Source: MCE Clean Energy
In this sample bill from PG&E, you can see an example of a tiered electricity usage structure. Source: MCE Clean Energy

Another type of billing structure that utilities might use is time-of-use pricing. In this structure, utilities charge different rates during different periods of the day.

  • Peak hours, also known as “on-peak” hours, are when electricity demand (and price) is the highest. In the summer, peak hours are typically 10am-8pm during weekdays. In the winter, peak hours are typically around 7am-11am and 5pm-9pm.
  • Off-peak hours are when electricity demand (and price) is the lowest. In the summer, this time is typically 11pm and 7am. In the winter, the hours are typically 9pm-7am.
  • Mid-peak hours that fall between on- and off-peak hours, when electricity demand (and price) is relatively average.  

Knowing whether your utility uses a tiered billing will be a powerful aspect of understanding your electricity bill and how to save on it. For instance, if your utility uses a consumption-based tiered structure, you can benefit significantly by decreasing your overall energy consumption. On the other hand, if your utility uses a time-of-use structure, simply adjusting when you wash dishes or run loads of laundry could result in significant savings.

Go Forth and Save Money!

Understanding your electricity bill is the first step to making changes at home that will enable you to conserve energy and save money. If you have additional questions about understanding your bill, let us know in the comments!