Front Porch Blog

High winter energy bills got you down?

Understanding your electric bill, 101

A few weeks ago, when temperatures dropped below 10 degrees, my electric cooperative, Blue Ridge Energy, posted a notice on its website that all 25 or so of their operators were busy answering calls about high energy bills or power outages. This was a reflection of the situation facing many people in Appalachia, where the winter months can be brutal — and not just because of the freezing temperatures and icy mountain roads.

Hundreds of thousands of families see their energy costs skyrocket in winter as their heating systems work harder to warm their home, leaving many struggling to pay their bills. It happened all across Appalachia this winter, leading a lot of residents to ask their utility why their bills have been so high.

Because of this, it seemed helpful to provide a basic overview of electric bills and how energy use translates to the balance you see on your bill. Not every electric bill looks the same, but there are typically some basic components that go into what you end up owing each month. If after reading this you still have questions about your bill, call your utility and have them go through your bill with you. They may even be able to provide you some tips on how to lower your energy use so that your next bill isn’t so high.

Electricity bill breakdown

For the average residential utility customer (or, member, if you’re a member of an electric cooperative), a typical bill will have a fixed or mandatory fee, an energy charge, and, depending on the state, a sales tax.

1. Fixed/mandatory fee. The “fixed charge,” also known as a mandatory fee, a minimum fee, or a basic facilities charge, is a set (fixed) fee that you pay on your electric bill each month, whether you use a lot of energy or none at all. The fixed charge is generally a reflection of a portion or all of the utility’s fixed costs, meaning how much it spends on non-energy costs like grid maintenance or staff salaries. These costs don’t change based on how much energy they sell. A typical fixed charge may range between $0 and $30, depending on your utility. It is important to note that some utility companies show this charge as a separate line item on your bill while others roll the cost into your overall energy charge, so it may be difficult to determine your monthly fixed charge. You can find that information on your utility’s website or call them directly.

2. Energy charge (“usage rate”). The energy charge is what you pay for the energy that you actually use. This is the part of the bill that most people are familiar with, and it will change from month to month based on your energy use. If you live in cold climates and have an electric heater, you are likely to see your electric bill increase by a good bit because you’re running your heater. The same goes for running air conditioners in warmer climates. The “rate” you pay depends on your utility, but typically ranges anywhere from 8 to 12 cents per kilowatt-hour (kWh). In many cases, your electricity rate reflects the cost for the utility of generating (or purchasing) and then distributing the electricity you need to your home. It’s useful to note that the rate you pay for the electricity you use is also how much you save for electricity you don’t use through conservation or efficiency.

3. Sales taxes. In some states, including North Carolina, there is a sales tax imposed on the sale of electricity, gas, or propane). This will show up as a separate line item on your bill and is imposed on the energy you actually use. For example, North Carolina residents pay a 7 percent sales tax, so the tax on a $100 energy charge raises your overall bill by $7 for that month.

Those are the three typical components of an electric bill. While your utility might structure the bill differently, here’s one example of how these three charges might appear.

In some cases, based on your utility or where you live, you may also see additional charges. Some examples might include:

  • “Fuel Cost Adjustment” (ex: Tennessee), which increases or decreases your energy rate based on changes in fuel costs for the utility from month-to-month;
  • Renewable or “green” energy fee (ex: North Carolina), a fixed monthly fee that allows the utility to recover costs resulting from meeting renewable energy targets;
  • Nuclear generation fee (ex: Georgia), a fixed monthly fee used to recover costs associated specifically with building a new nuclear plant.

Alternate billing systems to help with paying your bill

Finally, your electric bill might look completely different if you have selected to be placed on a non-standard billing system or schedule. Two common examples include:

  • Pre-Pay billing (also known as FlexPay), is when you add money to your account (like with a prepaid cell phone) and then your balance is deducted as you use energy. In most cases, you are still paying the fixed charge and taxes in addition to the energy charge, and the daily proportion of these costs are deducted each day from your balance.
  • Levelized billing, where you pay the same amount each month regardless of your actual energy use, and then your account is “trued-up” at the end of the year, meaning if you used more energy than you paid for, you pay off that remaining balance, or are credited for any overpayment if you used less than you paid for.
  • There are other billing structures as well, such as Time-of-Use billing, for example. Regardless of the way in which you are billed, it is important to understand how your energy use is reflected in your bill, and what the different charges you are paying are for.

Find out more!

Although there are a lot of factors that go into what you pay to your energy company, always remember that you have the power to lower your bill. Appalachian Voices has put together some useful resources to help you learn how, but a good place to start is to call your utility and ask about your bill. They may send someone out to your house to analyze your energy use and offer recommendations for improvements. Or, even better, they may have a program available to help pay for those improvements.

Rory is an energy policy and finance wonk with six years of experience working on energy policy and planning in Appalachia. He joined Appalachian Voices in spring 2013 as Energy Policy Director to head up our Energy Savings for Appalachia program. His dog, Hobo, is our official Boone office mascot.


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