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General Guide to Understanding Your Electric Bill

Key Points
  • Understanding how an electric utility computes a commercial or industrial bill is an important step to lowering your electricity costs.
  • This guide has been organized alphabetically by the major components of electric bills—energy, demand, delivery, deregulation, and other charges.
  • Utility regulations and bills vary, therefore some of these terms may not apply or may be different.


Base Energy Charge—The number of kilowatt-hours (kWh) used multiplied by the base energy charge for the rate. This covers the variable costs of production, transmission, and distribution of electricity unless otherwise unbundled due to deregulation within the state. It also may include a portion or all of the fixed costs of producing and transmitting electricity.

Kilowatt-Hours (kWh)—The quantity of true power multiplied by time. One thousand watts of power used for one-hour equals one kilowatt-hour. Kilowatt-hours are referred to as true power, because they are a measure of the portion of the kilovolt-ampere hours that can be converted from electrical energy into some other form of useful energy, such as heat, light, or motion.

power lines
Electric Fuel Adjustment—The actual allowable fuel costs incurred per kilowatt-hour. This rate is adjusted lower when low cost fuels can be used and higher when prices of fuels used go up. They are adjusted as prescribed by the utility regulator in each jurisdiction and may be monthly, quarterly, semi-annually, and so on.

Off-Peak Hours—All hours on the following days: Saturdays, Sundays, several holidays, and typically the hours from 9:00 PM of each weekday to 7:00 AM local time of the following day.

On-Peak Hours—Typically between 7:00 AM to 9:00 PM local time Monday through Friday, except for holidays.

Real-Time Pricing—Pricing based on the cost of available electric power at the time of customer demand.

Time-of-Use (TOU) Rates—The pricing of electricity based on a forecast of the cost of electricity during a particular time period. Time-of-use rates are usually divided into three or four time blocks per 24-hour period (on-peak, mid-peak, off-peak, and sometimes super off-peak) and by seasons of the year (summer and winter).


Demand Charges—A charge per kilowatt or kilovolt-ampere of monthly billing demand that is based on the highest monthly power peak, measured in kilowatts (kW). All but the smallest facilities will be billed for demand. This charge reflects the electric utility’s infrastructure cost of power generation and transmission and the more expensive fuels used in peaking plants.

Demand Ratchets—Minimum demand bills based on some percentage of the highest peak power metered over the preceding year. Thus, one month's high demand can affect monthly charges for an entire year.

Kilovolt-Ampere Demand (kVA demand)—The maximum number of kilovolt-ampere hours per defined time interval used by the customer. This is typically based on the largest number of kilovolt-ampere hours used in any 15 or 30-minute period of the billing period. Also referred to as apparent power.

Kilowatt Demand (kW demand)—The maximum number of kilowatt-hours per defined time interval used by the customer. This is typically based on the largest number of kilowatt-hours used in any 15 or 30-minute period of the billing period. Also referred to as true power.

Load—The electric power drawn from a power system by an end user.

Load Leveling—The deferment of loads from peak demand times to off-peak times, performed by end users, to level the rate of use and reduce the strain on the grid. Also, it is the practice of producing energy during off-peak periods for storage and use during periods of peak demand, performed by electric utilities or by businesses that generate and consume their own power, for the benefit of their own operating efficiency.

Load Profile or Load Shape—An individual customer’s load profile is described in terms of the maximum amount of electricity drawn during a specific time frame and the total consumption during a billing period. Load profile is often depicted as a curve on a graph with power (kW) supplied on the horizontal axis plotted against time of occurrence on the vertical axis. Likewise, a load duration curve displays load values on the horizontal axis in descending order of magnitude against the percent of time on the vertical axis that the load values are exceeded.

Load Shedding—Turning off or disconnecting loads to place a limit on peak demand.

Load Shifting—Moving loads from on-peak periods to off-peak periods. This can be done in a variety of ways, including moving manpower and equipment operations to a third shift.

Optional Time-of-Day Provision—Available to customers who operate primarily during the off-peak period and request installation of time-of-day metering in order to receive service under this provision. The customer is usually required to pay the necessary additional metering cost involved.

Peak Load or Peak Demand—The maximum level of electric power demand in a specified time period.

Power Factor (PF)—A ratio equal to the real power (kW) divided by the apparent power (kVA) that is used to assess the charges for total power used. Another way to calculate PF is by taking the ratio of the real power and the square root of the sum of the squares of true and reactive power.

Reactive Power (kVAR)—The quantity of non-working power caused by magnetizing current. Reactive power is measured in kilovars or kVARs. Reactive power is required for certain devices to operate, but it is not available as useful power on the output side of the device. Examples of such devices are motors, transformers, relays, and fluorescent lights.


electric meter
Distribution—The delivery of electric power to retail customers by way of low voltage distribution lines.

Reliability—Includes both adequacy (the ability to handle the total demand of all customers at all times) and security (the ability to maintain adequacy regardless of system interruptions or failures.)

Transmission—Movement of electric power over long distances, typically with a system of towers and large cables.

Volumetric Wires Charge—A fee levied for using an electric power transmission distribution system based on the transmission volume.

Wheeling—Another word for transmission, especially by an entity that does not actually own the power that is being transmitted.

Wholesale Competition—As the term suggests, an open market system where multiple electric power generators can sell to distributors, and distributors can buy from more than one generator.


Access Charge—A flat fee levied for withdrawing energy from an ISO-controlled grid. This fee recovers any of the utility’s transmission costs that are not recovered through a variable usage charge, which is the fee levied for the actual amount of energy used.

Aggregator—An entity that brings together small customers to buy electric power in bulk, allowing the customers to benefit from the economies of scale enjoyed by large customers.

Competition Transition Charge (CTC)—A fee levied by a utility to recover its stranded costs.

Direct Access—The purchase of electric power from a wholesale/retail dealer rather than a local distribution utility.

Embedded Costs Exceeding Market Prices—Costs of electric utility investments above current market prices, such as costs from regulatory or contractual obligations, that cannot be recovered in the sale of an asset and become stranded costs.

Load Aggregation—The pooling of loads by a group of customers to gain energy cost savings through economies of scale when purchasing electrical power.

Re-regulation—Deregulation may break vertically integrated utilities into smaller entities that still enjoy a natural monopoly because of the lack of viable competition. In those cases, re-regulation might be applied to assure fair and consistent service.

Retail Competition—An open-market system in which multiple electric power providers can sell to customers, and customers can buy from more than one provider.

Stranded Costs—Costs for investments in generating plants and other assets that a utility company probably cannot recover after deregulation. These costs show up as competition transition charges on customers’ monthly bills.

Sunk Cost—A cost that cannot be avoided because it has already been incurred.

Unbundling—Breaking electric service into its basic elements—generation, transmission, and distribution—and then setting rates for each service.


Customer Charge (service charge)—This is the charge for having electric service available. It includes such costs as reading the meter and the cost of billing the account.

Delayed Payment Charge—If full payment is not received within a specified amount of time—as set by the utility—an additional charge (usually a percentage of the total bill amount) may be added onto the bill.

P.I.P. Recovery Charge—The number of kilowatt-hours you use multiplied by the current recovery amount for Percentage-of-Income Payment (P.I.P.) Plan arrearages.

Utility—In a regulated environment, typically a company that is vertically integrated, in other words, that provides the full range of power-related services and that historically provides those services to all the customers in a specific geographic region. However, a utility may also be involved just in individual services such as generation, sales, transmission, or distribution.

Vertical Integration—When one company owns and manages the entire electric service process: generation, sales, transmission, and distribution.

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