Knowing Your Utility Bill: What are you paying for?

This article was reviewed and updated on May 5, 2021.

Utility Bill Basics

What happens to your electric utility bill? Does anyone look at it? Does it just go to accounting and the amount is paid? Do you know what you are actually paying for? How has it changed over the last year? I hope that you can answer these questions. It is important to manage your electrical costs, and understanding what you are paying for is the first step.

Energy Cost

A utility bill is typically made up of three parts. The first part is the energy cost. This is the cost per Kilowatt-hour (KWH) and is a measurement of how much energy you are using. The more that you use, the more you pay for. The energy cost is typically about 70-80% of your utility bill. This is how you typically pay for energy usage at your house.

Demand Charge

A demand charge is the second part of the utility bill and relates to the Kilowatt peak that your facility pulled during the time period. Industrial and commercial facilities are typically charged a demand charge in addition to the energy cost is due to the size of the service that the utility company needs to provide to you. If your peak for a time period is two times what your normal running load is, then, essentially, the utility company has equipment running at half its capacity during the majority of the month. A demand charge typically accounts for 20-30% of the bill.

Riders or Penalties

The third part of your utility bill consists of riders or penalties. These are additional limitations to your rates with which you must comply, the most common being the Power Factor (PF) Requirement. This is basically a measure of how efficiently you are using the power on your site. If you have a poor power factor, it is less efficient for the utility company to provide that power. In return, they pass along a penalty to you if you are outside the power factor range that you agreed to with your rate structure. Typically, power factor requirements are in the 0.9 to 0.95 PF range. If you are lower than the requirement, you will typically see a multiplier added to your bill in addition to the energy cost. You might see other riders such as energy efficiency programs, limits to your demands, or peak-time energy costs.

Rate Structures

Since each utility company is different and many different rate structures are available, you need to determine your individual requirements. These are typically called utility tariffs or rate structures, and they will be published on the utility website. Your utility bill or contract should identify which rate structure you are on; this will spell out how your bill is being calculated.

Rising Energy Costs

Many electrical systems today have metering installed on them that goes beyond just the basic utility meter. Using this data in addition to understanding your utility bill can help you do something about those rising energy costs. You can determine which part of your system uses the most electricity, where the power factor penalties originate, and where improvements could be made. In addition, using this metering data can help you catch issues before they hit your bottom line. If your PF changes dramatically, it’s likely one of the capacitors on your system just went offline. If your current or voltages change, then there might be an underlying issue. Keeping an eye on this data will help you diagnose problems as they happen.


Need help understanding or reviewing your utility bills? Contact us!


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