How To Read Your Electricity Bill: A Guide

Understanding what goes into your electric bill could help you identify ways to decrease your electricity usage. The complexity of your utility bill will depend on multiple factors. In some cases, the company that provides your electricity isn’t the same company that provides your water or gas service. So, that usually means a different bill for each. However, sometimes one company provides and bills you for all your utilities.

For now, let’s focus on your electric bill and help you understand what you’re seeing.

How Do Electricity Bills Work?

If you’re like most homeowners, you receive your monthly electric bill by mail, email or both. Perhaps you check to see the amount you owe, pay the bill and quickly move on to your next task.

But how does your electric company determine the amount you owe? Well, your monthly bill is a combination of your energy use, the cost per kilowatt-hour (kWh) and various fees your utility company might charge. In addition to your name, address and account number, you might see the following info on your bill.

Previous Balance

In many cases, utility companies will acknowledge you paid the previous month’s bill and provide a quick reference to your usage. For example, you might notice that your July bill trends higher than your June bill thanks to the higher average temperature from month to month.

Current Balance

This is your quick call to action to pay the amount for the current billing period. Most utility companies allow you to pay with a check or online via manual payment or autopay.

Taxes

Your utility bill may include a few lines that show state, county and city taxes.

Demand Or Time-Of-Use Charges

Many utility companies change the rate they charge per kWh based on the demand for energy. Typically, high-demand times are morning and late afternoon to evening. During these times, power plants may strain harder to produce electricity. Extra charges for power consumption during peak demand times are sometimes known as time-of-use (TOU) charges. Peak-demand hours and the amounts you’re charged may fluctuate by season.

Monthly Service Charges

Utility companies may also charge a monthly service fee to all customers just for being connected to the grid. The money that the utility company collects from this fee often helps maintain the grid and equipment used to provide metered connections. Monthly service charges – sometimes known as delivery charges – are generally a fixed rate unrelated to the amount of electricity a customer uses.

Your Billing Plan Name

It’s common for utility companies to have different plans to accommodate customer needs and priorities. Some companies may have plans that allow homeowners to pay extra to get electricity from renewable energy sources, but this is mostly a gesture to support renewables – similar to buying renewable energy credits (RECs). In practice, this is complicated because it’s not really possible to identify one source of electricity from another once the electricity enters the grid. 

Other billing or rate plans are often available for customers with solar panels or electric car chargers at home. It may be a good idea to talk with an electric company representative to determine whether you have the best rate plan for your situation.

Electricity Usage In Kilowatt-Hours (kWh)

Somewhere on your bill, you’re likely to see your home’s energy usage in kWh. This might be expressed as a monthly total or as a daily average. You might also see comparisons with the previous month as well as the same month from the previous year. Meter readings may also be included on your bill.

Electricity Cost Per kWh

Not all utility companies break down the cost per kWh, but some do. They might even show the amount they’re charging you for certain times of day. The word “tier” often indicates that your utility bill reflects different per-kWh charges throughout the day.

How To Read An Electric Bill With Solar

Introducing solar energy production to your electric bill adds another layer to understanding what’s happening. Many utility companies use net metering to compensate customers for the energy they produce, while others – like those in Arizona, which has statewide net billing – use a similar method.

Some utility companies will reveal how much energy you used, how much of that total your solar panels produced, the rate at which you were compensated and how much grid electricity you used.

How To Read Electricity Rates

Getting a per-kWh figure for your electric bill could be as easy as multiplying the average price per kWh by the number of kWh consumed over a month. But varied price tiers and time-of-use fees can make it more difficult to crunch the numbers. You’d also need to factor in taxes and any connection fees.

Why Understanding Your Electricity Bill Matters

If you understand your energy consumption, you can take steps to reduce it. For instance, if you have high-demand use charges, maybe you should wait until after peak hours to wash clothes, run your dishwasher or charge your electric car. You might even consider using an energy monitoring system to identify your appliances that are the most expensive to use and when you might avoid using them to reduce your utility bill. This information can also help you identify ways to make home upgrades for energy efficiency.

You can also spot trends in year-over-year or month-to-month usage, as well as collect data to figure out how many solar panels your home might need.

FAQs: Understanding Energy Bills

Here are a few common questions about how to decipher electric bills.

What is a kilowatt-hour?

A kilowatt-hour (kWh) is a measure of energy – it shows how much work 1,000 watts can do over an hour. Your electricity use is measured in kilowatt-hours. People shopping for electric cars may also be familiar with kWh because car manufacturers use this measurement to express battery size.

What can 1 kWh power?

With 1 kWh of electricity, you might be able to power a dishwasher or washing machine for 100 minutes. You could also drive an electric vehicle about three miles, depending on make and model.

To put 1 kWh of power in perspective, U.S. homes averaged about 29 kWh of electricity per day in 2021.

What’s the average cost per kilowatt-hour for electricity in my state?

The Energy Information Administration (EIA) has a helpful chart of energy costs by state and region, along with a national average. It also provides data for various sectors, including residential, commercial, industrial and transportation.

The Bottom Line

Understanding your electricity bill can help you cut costs by fine-tuning your energy consumption. Knowing how to read your electric bill means a better understanding of your kWh usage, and that might even help you prepare to add solar panels to your home.