How to Understand the Charges on Your Utility Bill

on January 9, 2017

Every month millions of utility bills are sent out to customers across the country. Each utility bill has an incredibly detailed explanation of the bill charges and usage, but how many of us actually know what all of those details mean? Here are some of the main things you need to know.

Electricity Usage on Your Utility Bill

Your kWh Usage

Electricity usage is tracked by electronic meters that are able to record the amount of electricity that flows in and out of your home. Your utility company reads your meter every month in order to determine your monthly usage. Meter readings are typically displayed on your bill as a longer string of numbers, but your monthly usage can be determined by subtracting last month’s reading from this month’s reading.

The average household uses approximately 908 kilowatt hours (kWhs) of electricity every month. Generally speaking, utilities charge their customers based on how much electricity they use. This means that if your usage goes up, so does your bill. The amount you owe is determined by multiplying your utility's rate per kWh by the total kWhs you used that month.

The average electric utility rate in the country is 12 cents ($0.12) per kilowatt hour, but it varies drastically from state to state. Electricity costs are as low as $0.08/kWh in Idaho and as high as $0.18/kWh in New York. Consumers in Hawaii pay the highest rate of nearly $0.33/kWh.

A customer who consumes an average amount of electricity and pays the average utility rate can calculate their approximate utility costs by multiplying those two values:

$0.12 x 908 kWhs= $108.96

This customer would pay approximately $108.96 per month for their electricity usage. This is fairly average, but usage and pricing can vary depending on many different factors, such as the number of residents in a home, the size of a home, and the efficiency of appliances. Often times, utility costs even vary based on the time of day that you use electricity.

Tiered Electricity Pricing

Many utilities use a tiered pricing system that charges customers a higher rate once they have surpassed a certain level of usage. This system categorizes the customer's usage into various tiers, and then charges specific rates for each usage tier. Usage within the first tier will be charged one rate, whereas usage within the second tier will be charged a higher rate, and so on, until all of the customer's usage has been assigned a rate.

For example, let’s say that the tiers are set in increments of 500 kWhs. Tier one holds the first 500 kWhs of usage, tier 2 accounts for usage between 500-1000 kWhs, and tier 3 holds usage over 1000 kWhs. Based on the image below, usage in tier one would be charged a rate of $0.15/kWh, tier 2 would be $0.20/kWh and tier 3 would be $0.40/kWh.

Image Source:

If a customer uses an average of 908 kWhs per month they would be charged $0.15/kWh for the first 500 kWhs and then $0.20/kWh for the remaining 408 kWh. Their bill would be broken down like this:


Tier 1 ……………………………..500 kWhs @ $0.1500

Tier 2……………………………...408 kWhs @ $0.2000

Tier 3………………………………...0 kWhs @ $0.4000

Total Usage………………………. 908 kWh

Net Charges……………………………………..$156.60

Time of Use Electricity Pricing

Some utilities also take into account the time of day that electricity was used. With time of use pricing, for example, rates are higher when there is greater stress on the grid or higher demand for electricity.

Generally speaking, there is high demand for electricity between noon and 7pm, and if a customer uses electricity between these hours they will be charged a higher rate for their consumption. Their rate will go back down after these peak hours of electricity usage end, though.

The graph below shows how demand for electricity rises and falls throughout the day. Under time of use pricing, electricity is the least expensive when demand is low the most expensive when demand is high.

Image source: The Energy Collective

Gas Usage on Your Utility Bill

Many utilities also provide gas services, so their electric bills will include gas charges as well. Like electricity, gas usage is tracked using a meter that records your usage for your utility. This usage is measured in therms or CCFs, both of which are units used to refer to the measurement of an amount of gas. A therm is a unit of energy and a CCF is a measurement of the volume of gas itself. It takes one therm (100,000 BTUs) to burn 100 cubic feet or 1 CCF of natural gas.

Other Charges and Fees on Your Utility Bill

Utilities often tack on other fees associated with electricity service and delivery. These fees can be for a variety of things, but many utilities commonly have a distribution service charge, a grid connection fee, late fees, and a low income assistance fee. All of these fees are broken down on your bill and added up to give you a grand total every month.