Understanding Your Electric Bill

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Want to know how can I reduce my electric bill? If the goal is to reduce or lower your electricity bill, the first step is understanding how to read your bill.

There are over 3,800 electric utilities and cooperatives in North America, and almost as many different ways to bill for electricity.

TED is designed to allow you to easily enter your own electric rate structure, and does it through a very simple, intuitive rate wizard.

It is important to understand how your electric utility calculates your electricity bill, to insure that TED is setup to make the calculation in the same way as your utility, and thus arrive at the same total (or extremely close) as your utility.

TED will accommodate the following rate structures:

  • Simple (or Fixed) Rate
  • Tiered (or Step) Rate
  • Time of Use (TOU)
  • Demand Rates
  • Tiered within Time of Use
  • Seasonal (4 Seasons)
  • Weekend / Holidays
  • Any combination of the above

Following is a brief description of each rate structure, and how they are used by the utility. You may find it useful to have a copy of a recent electric bill nearby to determine how your utility charges.


This is by far the easiest to understand. The Simple Rate program is simply that. Simple. The utility charges $0.xx cents per kilowatt-hour used. There may be sales tax or other incidentals added, but it is by far the easiest to understand. Billing example:

kWh used: 2,300
Rate per kWh: $0.1125
Calculation: 2,300 x $0.1125 = $258.75


This is one of the more common residential rate programs used by utilities. One would think the concept of this rate would be to encourage conservation by charging a higher rate as the usage increased. This makes sense. Because of the current push to conserve our precious energy resources, it would seem that this rate would incentivize the consumer to use as little electricity as possible; once a particular threshold of energy use was exceeded, the rate would become higher, or more punitive. HOWEVER, there are many utilities that do not charge a higher rate for excessive use. They actually charge a lower rate once the initial threshold is reached, which seems to contradict the purpose of the rate concept. But in this case, it comes to the advantage of the consumer

Tiered Billing example:

Let’s assume your utility uses a two-tiered rate structure where the rate for the first 500 kWh is $0.1001 per kWh and for any over this is $ 0.1500 per kWh. The PUC has also allowed your utility an energy surcharge of $5 because of high natural gas prices; you also pay a fixed charge of $10.00 per month for street lighting, and the sales tax rate in your area is 6%.

Let’s assume that TED has measured your usage for the billing month at 2300 kWh. TED calculates the bill as follows:

Energy Charge for the first 500 kWh: 500 kWh x $0.1001 = $ 50.05
Energy Charge for the remaining 1800 kWh: 1800 kWh x $0.1500 = $ 270.00
Subtotal = $ 320.05
Energy Surcharge = $ 5.00
Subtotal = $ 325.00
Fixed monthly charge for Street Lighting = $ 10.00
Subtotal = $ 335.05
Sales Tax 6% = $ 20.10
Total Month to Date = $ 355.15

Your electricity bill may also have some additional/separate charges for:

  • Delivery $ 0.080 per kWh
  • Billing Fee $ 0.010 per kWh
  • Debt Retirement $ 0.020 per kWh

Many utilities do have a separate “Energy Charge” and “Delivery Charge.” The ‘Energy Charge’ is just that...the amount charged for energy consumed. The ‘Delivery Charge’ is a fee charged to deliver the electricity - which may include things like telephone poles, transformers, power lines, utility meter, etc. The rates for each are generally a multiplier of your kWh usage - so you would simply add them together. For example, if the ‘Energy Charge’ were $0.1001 per kWh and the ‘Delivery Charge’ were $0.0650 per kWh, you would sum $0.1001 + $0.0650 = $0.1651 per kWh.

Generally speaking, you can sum all of the charges on your electric bill that are a multiplier of kWh usage.

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TOU rates are common among utilities that are attempting to maintain/control their peak demand. The concept is to charge the consumer the highest rate during peak usage periods in order to persuade the consumer to be more conscientious in their conservation efforts. The utility will generally have two PEAK periods during the day - morning and evening - from 8AM to 10AM and again from 5PM to 8PM, or some similar times when demand is the highest. Some utilities will also have several TOU periods throughout the day, depending on their ability to provide power. One might also see the occasional reference to TOU rates as OFF-PEAK, MID-PEAK, PEAK, CRITICAL PEAK. The pricing for each of these are what you would expect ... OFF-PEAK being the least expensive and CRITICAL PEAK being the most expensive. A TOU rate plan requires a special electric meter to be installed; this meter is able to keep up with usage during specific times of the day, and report the usage to the utility at intervals so that the utility can bill accurately for the usage. TED will keep up with your TOU billing just as easily, and keep you informed all the while.


Demand rates are typically associated with commercial or industrial facilities, but there are some utilities that do offer it to residential customers. The Demand Rate is only one component of an electricity bill, but it can be most significant. Accompanying a Demand Rate will generally be a low kWh charge for the energy consumed throughout the billing period; this is then added to the Demand Charge.    Many utilities are now implementing Demand Charges to help offset their cost of providing power during peak times (in addition to the normal tariff being charged).   Demand charges are easy to explain, yet very hard to manage.

Explanation of Demand Charge: A Demand Charge is based on the highest amount of power reached during any 15, 20, 30, or 60-minute average during a billing period.  The utility then charges a fixed amount (as a multiplier).   For example, let’s say your dryer uses 5.2 kW of power and your oven uses 4 kW.   If you use these appliances at the same time to produce an average of 9.2 kW over 30 minutes (and this is your highest average over a 30-minute span for the bill cycle) – this becomes your Peak Demand.   So you would be charged 9.2 times the Demand Charge rate.   If, in the above example, the appliances were used at different times of the day, the same amount of energy would be used, but the Peak Demand would be greatly reduced and your Demand charge would be cut almost in half. Demand charge rates can range anywhere from $1.50 to $14 per kW.   So in this example, the Demand Charge would be: 9.2 kW x $1.50 = $13.80 ... or in the extreme pricing: 9.2 kW x $14 = $128.80.   This would be an additional charge added to the utility bill.

The Problem:   the consumer has no way of knowing what his present Demand is, and more importantly, if he is about to increase his demand.

The Solution: TED - The Energy Detective.   TED will provide real-time feedback on usage, as well as provide constant awareness of Demand.   TED will automatically send text and/or email alerts to notify the consumer that the Demand is about to increase - allowing time to make adjustments to the electricity usage.   In addition to any mobile device or computer, TED also has a free mobile app (iOs and Android) available to assist in Demand management

To help understand the concept of Demand further, consider this. Business “A” is open for 8 hours a day. It uses an average of 2400 kWh per day. 2400 / 8 hours = 300 kW. Business “B” also uses 2400 kWh, but its facility is open 24 hours per day. 2400 / 24 = 100 kW. From the utility standpoint, it is much more expensive to generate Business “A’s” 300 kW than it is to generate “B’s” 100 kW, so they charge “A” a Demand Charge (because the facility ‘demands’ the use). So Business “A’s” Demand Charge may look something like this: for every kW required over 100 kW, the utility will charge $1.75 per kW. In this case, Business “A” would be paying a Demand Charge of $350 (200 kW x $1.75). Here is how their bills would compare:

Business “A”
Usage 2400 kWh @ $0.04 = $96.00 (they receive a lower kWh rate if on a Demand Rate tariff)
Demand Charge = $350.00 (200 kW x $1.75)
Total bill: $446.00
Business “B”
Usage 2400 kWh @ $0.075 = $180.00

As you can see, Business “A” has a higher bill easily caused by the Demand Rate; the Demand Rate is a VERY significant part of an electricity bill, and can often times be punitive. It is vitally important to be able to monitor and measure Demand. TED keeps up with the Demand Rate in real time and is able to send alerts via text message or email to advise of an impending increase, thus allowing the consumer to make changes to their usage to keep the Demand Rate from increasing.

TED keeps up with Demand charges! If you don't have a TED, click to get a TED!


This is an unusual rate, but not uncommon. Especially in California. This rate is too complicated for an individual to keep up with without technology assistance. The rate can get even more complicated as some utilities maintain this rate structure on a DAILY basis. In other words, let’s say you have 3 TOU periods throughout the day.

  • Off-Peak from midnight until 10AM
  • Mid-peak from 10AM until 5PM
  • Peak from 5PM until 11:59PM

To really complicate things the utility might add 2, 3, or 4 tiers within each of the above. So the rate would have a formula that would look something like this:

  • Off-Peak from midnight until 10AM (1st 10 kWh @ $0.04, 11-20kWh @ $0.06, 21+kWh @$0.08)
  • Mid-peak from 10AM until 5PM (1st 20 kWh @ $0.10, 21-40kWh @ $0.16, 41+kWh @$0.19)
  • Peak from 5PM until 11:59PM (1st 25 kWh @ $0.20, 26-45kWh @ $0.22, 46+kWh @$0.28)

Basically you would just have to take the utility’s word that the billing is correct, because without a TED system monitoring this type of tariff structure, you couldn’t do it.


Seasonal charges (Winter, Spring, Summer, Fall) are pretty standard in the industry. Some utilities charge a higher rate during Winter and Summer, as they are the seasons that require the most energy (primarily due to Heating and Air Conditioning) ... and it costs more to produce more energy. So the utilities pass the extra costs on to the consumer.


Weekend and Holiday Rates generally only apply to those on Tiered or Time of Use Rate plans. Rates on Saturday and Sunday are at their lowest rates. There are no Tiers or TOU rates on weekends or holidays. Energy is charged at an Off-Peak rate for the entire period.

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