How Do Electric Companies Calculate Your Electric Bill

Does your electric bill seem like a mystery to you? Understanding how electric companies calculate your bill can help eliminate the mystery, making it easier to understand how to decrease your bill.

The Basics

Electric companies charge a specific rate per kilowatt-hour of electricity that is used in the home. To get the total cost of your bill, they multiply the number of kilowatt-hours of electricity that you have used during the billing period by this rate.

For example, if your electric company charges 10 cents per kilowatt-hour and you’ve used 1000 kilowatt-hours in the month (which is about average in the American household) then your bill will be $100.

Peak Times and Seasonal Charges

Note that many electric companies charge different rates per kilowatt-hour depending on the time that your electricity is being used. There are peak times during the day when prices may be higher than the rest of the day. Weekday and weekend rates may also differ. It is important to understand this because if you use your electricity primarily during off-peak hours then your electric bill will be lower compared to someone who uses electricity during peak hours.

Stepped Rate

Some utility companies use a stepped rate system in which the rate charged per kilowatt hour decreases as more electricity is used. For example, you may be charged ten cents per kilowatt-hour for the first 200 kilowatt-hours that you use and then charged only nine cents per kilowatt-hour for the next 200 kilowatt-hours that are used. This isn’t a common practice but it’s something to pay attention to if it’s the way that your electric company works.

Additional Charges

Note that the utility companies also add some additional charges to the cost of your bill. These additional charges include taxes and "administrative costs". These should be the same from month to month and should be explicitly outlined on your electric bill. If you have any questions about these charges, don’t hesitate to ask the electric company what they’re all about.

Same Monthly Payment

Many electric companies offer the option of switching your bill payment system so that you pay the same amount each month. In this case, they calculate your average monthly usage based on the number of kilowatt-hours you generally use throughout the year (and then dividing the number by twelve to get the monthly amount). They multiple the hours by your kilowatt-hour rate and that’s your charge every month.

Publish Date: 2010-12-09 08:55:48

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About the Author
Christina Cleri has been writing about the energy industry since 2010. She focuses on topics that affect customers in each deregulated state.

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