Below is a basic breakdown of some of the information you will find on your bill. Select a link or scroll down the page to learn more.
There are two ways that customers and loads are segregated for billing purposes. The first is by customer class, based on a board definition of the nature of the customer. The range of classes includes residential, general service (commercial-industrial) and large (industrial) users. These definitions have been fairly stable through the years.
Some loads are given “Flat Rates“. These include street lights, and sentinel lights.
When current flows, it can do work. Fortunately, the quantity of electricity that flows can be related exactly to the amount of work done. The rate of doing work is measured in watts, which are arrived at by multiplying the voltage by the amperage (the component of current in phase with the voltage). For most practical purposes, the watt is too small a unit (746 watts equals only one horsepower), so the kilowatt (1,000 watts) is used as the standard unit.
Kilowatt Hours (Energy)
If work is done for a period of time, the amount of work done is the product of the rate (in kilowatts) and the time of use (in hours). This gives us the familiar kilowatt-hour (kWh). The kWh is a quantity of work done, in contrast to the kilowatt (kW) which is the rate at which the most work is done.
Peak demand is the maximum rate at which the customer used electricity during the billing period. Since a utility undertakes to maintain a fixed voltage (within tolerable limits) it must have sufficient equipment in place to supply all customers’ required capacity at all times. This equipment (distribution lines, transformer, switchgear) must be paid for and a specific charge is levied to cover this. In other words, it is the cost of having equipment in place to meet maximum customer capacity requirements. Some of this generation equipment may not be utilized fully all of the time yet it must be in place in case the utility has high power demand.
Since loads vary with time, much more so for some customers than others, the demand charge is the way the utility recovers its cost for installing equipment to meet customers’ maximum demand. The utility realizes that some customers’ loads are greater than others. It would not be fair to bill all customers equally, therefore they are billed according to their load (kW) requirements. It is called the demand charge and is usually quoted in dollars per kilowatt of maximum demand per month.
Energy is a measure of work done. A utility that generates electricity to supply customers has to burn fossil fuel, or operate nuclear or hydraulic generating stations, to produce the energy that is consumed. Utilities, that don’t generate must pay others to supply them. The cost of providing and/or purchasing this energy is reflected in an energy charge to the customer. The charge is applied to the number of kWh used each month, and is usually quoted in cents per kWh. Different energy rates apply to different amounts of consumption. A typical energy rate structure is shown in the figure to the right. With this declining block rate structure, the charge per kWh decreases as the use of kWh increase. The rate for the first block is designed to collect most of the non-energy, or demand related costs, as well as energy costs. These non-energy costs are associated with work the utility must do (such as meter reading, billing and accounts administration) regardless of the customer’s consumption.
Once these fixed costs have been recovered, the lowest block rate is designed so the customer pays only for incremental energy costs of fuel to generate electricity.
Since the energy block rate will not collect costs when a customer’s consumption drops to zero for a month, a minimum bill is also specified. The minimum bill is necessary to cover periods of low use. If the customer knows that electricity will no longer be used, minimum bills can be avoided by informing the utility and being disconnected from the supply system. A disconnection or reconnection charge is usually applied.