Understanding Your Electricity Bill: Saving Money on Electricity Starts Here
A quick search will reveal that the Internet is saturated with articles about saving money on electricity bills. If you have been reading these articles, you probably have heard about energy star appliances and compact fluorescent light bulbs and not keeping your refrigerator door open longer than necessary and using fans instead of air conditioning and so on. But do you know how much you are actually paying for your electricity? If you don't know the basics about how electricity usage is priced, simply looking at your bill might be confusing and may not be very helpful towards figuring out how much electricity you used and how much money you ended up paying per unit. This article aims to provide you with the necessary background to understand your electricity bill. That way you will be able to make decisions such as whether it makes any sense to keep the refrigerator running over a period of time (such as a long trip or vacation) by comparing the cost of electricity to the cost of the food inside the fridge.
Basic Terminology
Before putting a price tag on electricity, one has to be able to measure it, just like everything else that is bought and sold.
Electricity usage is measured in kilowatthours, abbreviated kWh, which is defined as the quantity of electrical energy consumed by a 1000 watt device in one hour, or equivalently, by a 100 watt lamp burning ten hours. Most appliances will include some information about their electricity consumption, either on a label or on an engraving, usually on the back of the appliance. To calculate the energy consumed by an appliance, multiply the wattage of the device with the number of hours it was used and then divide by 1000 (so that the result will be kilowatthours, not watthours).
For example, a 100watt lightbulb which was used for a total of 20 hours in a month will have consumed
100 x 20 ÷ 1000 = 2 kilowatthours
of electrical energy.
Some appliances will list amperes instead of watts, which may look like "3 amps" on the label. If this is the case, multiplying the voltage with the amperes will yield the wattage of the device. The household electricity is 120 volts in United States, Japan and Taiwan; while it is 230 volts pretty much everywhere else in the world. So, in United States, if an appliance listed as 5 amperes runs for 10 hours, it will have consumed
120 x 5 x 10 ÷ 1000 = 6 kilowatthours
of energy.
Some appliances, especially those that perform complicated tasks such as refrigerators, ovens and washing machines may use less energy than the amount indicated on their label; in fact, the indicated wattage is the maximum amount of energy that the appliance may use at any time. Therefore, for such appliances, it is impossible to determine the exact amount of electricity consumption by simply looking at their label. A watthour meter may be used to accurately measure electricity usage of any device.
Sample Wattage of Common Appliances
Appliance
 Wattage


Medium Size Window AC
 900

Clothes Dryer
 4400

Refrigerator (Average)
 57160

Dishwasher (with water heating)
 3600

Dishwasher (no heating or drying)
 200

Electric Oven, 350°F
 2000

CFL Light Bulb (60watt equivalent)
 18

Desktop Computer & 17" CRT monitor
 150340

Laptop Computer
 45

32" LCD Television
 98156

Microwave Oven
 1440

4Slot Toaster
 1440

Coffee Maker
 900

Exercise.
During a weekend trip in United States, the Browns used four 100watt light bulbs for 8 hours, a 1.25 ampere TV for 4 hours, a 900watt air conditioner for 6 hours and a 900watt coffee maker for 1 hour. What is the total amount of electricity (in kWh) used by the Browns during the weekend?
Answer.
For the light bulbs, a total of
4 x 100 x 8 ÷ 1000 = 3.2 kWh
of electricity was used.
For the TV, since household electricity is 120 volts in U.S.,
1.25 x 120 x 4 ÷ 1000 = .6 kWh
was used.
The air conditioner used a total of
900 x 6 ÷ 1000 = 3.6 kWh
of electricity.
Finally, the coffee maker used
900 x 1 ÷ 1000 = .9 kWh
of electricity.
Adding all up, we find that a total of
3.2 + .6 + 3.6 + .9 = 8.3 kWh
of electricity was used over the weekend.
Cost of Electricity
Now that we have an understanding of how electric usage is measured, we can move on to investigating our electricity bill to figure out how much money we are paying per kilowatthour of electricity.
There may be many different types of charges on your bill, which is probably the main reason why it is so complicated to figure out what you are actually paying per unit. Some of these charges are fixed, meaning you will pay the same amount regardless of how much electricity was consumed. These fixed charges are often labeled as "service charge", "standing charge", "customer charge", "basic charge", "cost of service", etc. Other charges are variable, which means it was based on the amount of electricity consumed in that billing period. These charges will list a unit price and the amount of electricity that was used in kilowatthours. The charges that are labeled "supply charge", "energy charge", "distribution charge", "transition charge", "transmission charge", "generation charge" are examples of variable charges. The price you are paying per kWh of electricity will be the sum of all the unit prices of these variable charges.
Let's take a look at the following data which was taken from this sample bill:
Delivery Services
 

Customer Charge
 2.75
 
Distribution Charge
 .03378 x 955 kWh
 32.26

Transmission Charge
 .00910 x 955 kWh
 8.69

Transition Charge
 .00559 x 955 kWh
 5.34

Demand Side Management
 .00230 x 955 kWh
 2.20

Total Delivery Services
 $51.24
 
Supply Services
 
Energy Charge: Standard Offer
 .08300 x 955 kWh
 79.27

Renewable Energy Charge
 .00062 x 955 kWh
 .59

Total Supply Services
 $79.86

Here, the "Customer Charge" is a fixed charge since there is no information about the number of units consumed or cost per unit. All the other charges are variable, because they list the cost per unit depending on the type of charge (in dollars, such as ".03378", which corresponds to a little more than 3 cents) and the usage amount (955 kWh). Adding all the costs per unit, we find that this customer ended up paying 13.4 cents per kWh, excluding the fixed costs, taxes, etc.
Electricity Supply Services
 42,92
 

Electricity Supply Charge
 512 kWh x 0.07653
 39.18

Transmission Services Charge
 512 kWh x 0.00730
 3.74

Delivery Services
 21.01
 
Customer Charge
 30 days x 0.28
 8.40

Distribution Facilities Charge
 512 kWh x 0.02463
 12.61

Other
 
State Tax
 6.5 %
 4.15

Total
 68.08

Exercise.
Alice's electric bill for the month of June is given in the table to the right. She estimates that for July, her electricity consumption will be up by 200 kWh because of a new appliance that she bought. Assuming there won't be any changes in the price per kWh of electricity, how much will she pay for electricity in July?
Answer.
According to Alice's estimates, her consumption will be 712 kWh. We will go line by line and calculate her charges for July.
 Electricity Supply Charge: 712 kWh x 0.07653 = 54.49
 Transmission Services Charge: 712 kWh x 0.00730 = 5.20
 Customer Charge: 31 days x 0.28 = 8.68
 Distribution Facilities Charge: 712 kWh x 0.02463 = 17.54
 6.5% State Tax on 85.91: 5.58
Therefore, in July, Alice will pay 91.49 dollars on electricity, which is 23.41 dollars more than what she paid last month.
Tiered Rates
Depending on your company, certain charges that you pay by the kilowatthour may be tiered, which means as your usage exceeds certain levels (called tiers), the price you pay per kWh increases. This way, excessive usage is discouraged and therefore electric companies do not have to make costly investments just to be able to meet the demand. If your company uses tiered rates, you will see increasing amounts of price per kWh for the same charge, usually accompanied by explanations like "price for the first 600 kWh", "price for the next 500 kWh", etc.
Company
 Number of Tiers
 Tier 1
 Tier 2
 Tier 3
 Tier 4
 Tier 5


Pacific Gas & Electric
 5
 Variable
 %101%130 of Tier 1
 %131%200 of Tier 1
 %201%300 of Tier 1
 Excess of %300 of Tier 1

Southern California Edison
 4
 Variable
 %101%130 of Tier 1
 %131%200 of Tier 1
 Excess of %200 of Tier 1
 
Florida Power & Light
 2
 Up to 1000 kWh
 Excess of 1000 kWh
 
Georgia Power
 3
 Up to 650 kWh
 6501000 kWh
 Excess of 1000 kWh
 
Dominion Resources
 2
 Up to 800 kWh
 Excess of 800 kWh
 
DTE Electric
 2
 Up to 17 kWh per day
 Excess of 17 kWh per day
 
Public Service Electric & Gas
 2
 Up to 600 kWh
 Excess of 600 kWh

Energy Charges:
 

First 462 kWh
 462 kWh x 0.13009
 60.10

463  601 kWh
 139 kWh x 0.15157
 21.07

602  924 kWh
 323 kWh x 0.19704
 63.64

Over 924 kWh
 40 kWh x 0.23645
 9.46

Total:
 154,27

Exercise.
Bob's electric bill from last month is given in the table to the right. By switching to cold wash cycles, Bob thinks he can reduce his electricity consumption by 65 kWh. Assuming there won't be any changes in the price per kWh of electricity, how much would Bob save by switching to cold wash cycles?
Answer.
Adding usage information from all tiers, we find that Bob consumed a total of 462 + 139 + 323 + 40 = 964 kWh of electricity. As his electricity consumption decreases by 65 kWh, he will observe the following charges on his bill:
 First 462 kWh: 462 kWh x 0.13009 = 60.10
 463  601 kWh: 139 kWh x 0.15157 = 21.07
 602  924 kWh: 298 kWh x 0.19704 = 58.72
Adding these charges, we find that Bob will pay 139.89 dollars for electricity this month, which is 14.38 dollars less than what he paid the previous month.
Seasonal Rates
Instead of or in addition to tiered rates, your company may be charging seasonal rates for electricity, which usually means more expensive electricity in the summer. The reason for such a pricing policy is to make up for the heavy strain on the energy grid caused by a lot of air conditioners running at the same time. To determine if your company is charging seasonal rates for electricity, you should compare the price per kWh (of the same tier, if the rates are tiered) of summer months to that of the winter months.
TimeofUse Pricing
In this pricing model, the price per kWh of electricity depends on the time of the day, early mornings and late nights being the cheapest and afternoons being the most expensive. If your bill contains words such as "peak", "offpeak" or "part peak", you are probably subject to timeofuse pricing. This kind of pricing was made possible by what are commonly known as "smart meters", which records information about what time of the day electricity was used, in addition to how much of it was used. If your dwelling is equipped with a smart meter, the chances are that you are paying for your electricity on a timeofuse basis.
If you find out that you are on a time of use pricing schedule, you should look for ways to shift some of your energy consumption to offpeak hours. Of course, it is impossible to avoid using certain appliances such as air conditioners or electric heaters during peak hours, but some appliances, such as washers and dryers, can be used during offpeak hours without much difference.
Electricity Charges
 

Offpeak
 527 kWh x 0.059
 31.09

Midpeak
 256 kWh x 0.089
 22.78

Peak
 315 kWh x 0.107
 33.70

Total
 87.57

Exercise.
Carol's electric bill from last month is given in the table to the right. If she were to shift 100 kWh of her usage from peak to offpeak hours, how much would she save, assuming there won't be any changes in the prices?
Answer.
With 100 kWh shifted from peak to offpeak hours, Carol's new charges will be as follows:
 Offpeak: 627 kWh x 0.059 = 36.99
 Midpeak: 256 kWh x 0.089 = 22.78
 Peak: 215 kWh x 0.107 = 23.00
Adding these charges, we find that Carol pays 36.99 + 22.78 + 23.00 = 82.77 dollars for electricity, which is 4.80 less than what she paid before.
Demand Charge
To cover the costs arising from the heavy demand on the grid, some companies may charge their customers a "demand charge", which is based on how fast electricity was consumed, rather than how much of it was consumed. Therefore, the demand charge is measured in kilowatts instead of kilowatthours. Customers who run a lot of appliances at the same time are subject to higher demand charges compared to the customers who spread out their electricity consumption, even if they end up using the same amount in kWh at the end of the month; because the former puts more strain on the grid compared to the latter. If you are subject to demand charges (which will be indicated on your bill), you should avoid running a lot of appliances at the same time.
Conclusion
Although most of the common practices in electricity pricing have been discussed in this article, your company's policies may be different. The only way of knowing what you are being charged is examining your bill. Try to understand everything on your bill and if you can't, don't hesitate to ask your company to explain. That way, saving money on electricity will be as easy as running an appliance a few hours later instead of now or running them one after another instead of at the same time.