Understand Your Electricity Bill and other Charges

It is important to know your electric rate structure to understand how your utility calculates the electricity bill. Numerous power distributors operate in North America, and there are many different ways to bill for electricity. Let’s discuss some of the basic structures, charges, and fees.

The Electricity Bill Rates

Depending on the services offered by the providers, the plans that you can choose from are:

Fixed Rate

It is the simplest of all the schemes where the electricity bill is calculated by multiplying the used kWh (kilowatt per hour) with the price per kWh. There may be extra charges for sales tax and other incidentals, but the final figure will mainly depend on your usage.

Tiered Rate

It’s a tier system scheme where the electricity charge increases or decreases after the consumer crosses a particular threshold of energy. If you choose a two-tier structure, two different rates will be applied.

Time of Use (TOU) Rate

It divides a single day into several peak hours and applies separate fees for each session. The pricing for critical peak period is the highest while the off-peak is the least expensive.

Tiered within the Time of Use (TOU) Rate

The system is complicated as it divides a day into several peak hours and then adds two, three, or four tiers within each of the periods.

Seasonal Rate

The costs for season-based electricity usage (summer, fall, spring, and winter) are almost same. Nevertheless, some providers charge higher rates during summer and winter because of the high consumption of energy.

The Charges

Some of the most common charges are discussed below:

Distribution Charge

It is the cost that you, as a client, has to pay for the local wires, substations, transformers, and other equipment required for delivering the electricity to your house. The total price also includes customer charge that covers the costs of monthly billing, metering, maintenance, and other customer services.

Transmission Charge

In this case, you have to pay the costs of transferring high-voltage electricity from a generation facility to the provider’s distribution lines. All of these fees are federally regulated.

State Tax Adjustment Surcharge

It is a surcharge on electricity rates charged to the end-users. It allows distribution companies to track changes to different state taxes.

The Fees

As a consumer, you have to pay various types of fees including charges for account transfer, connection, reconnection, return check, and declined credit card. In addition, there’s a power cost adjustment that refers to the recovery of wholesale energy costs beyond the current rates. All the fees are subject to change without any notice.


You can shop for your electricity, just like you would shop for purchasing any item. A slight variation in rates and fees may seem insignificant but remember that saving just a cent per kWh could reduce your electricity bill by more than $100 per year.