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How Do Utility Companies Figure Out Your Electric Bills?

Posted by Kelly on Apr 7, 2015 11:53:00 AM

Understanding How Utility Bills Are Calculated Electric Bills

Sometimes it feels like you need a doctorate in “utility charges” language just to figure out what’s on the electric bill. After all, there are fees for this, charges for that, and taxes on everything. So, if you’ve ever wondered how the utility companies figure out your electric bill, here’s a quick guide to help you make sense of it.

What Am I Being Billed For?

Electric bills generally have three categories of charges: supply, delivery and taxes/fees.

  • Supply Charges – This is for the actual power you use each month. Usage is measure in kilowatt-hour (kWh). According to Xcel Energy, “one kWh equals 1,000 watts of electricity used for one hour. This is enough electricity to light a 100-watt light bulb for 10 hours.” Some states have fixed rates like Minnesota, others have a competitive markets were they can pick their energy supplier.
  • Delivery Charges – These charges are for the administrative costs of getting the energy to you. Basically, the costs of doing business with the company and all the little things that the company does to get you electricity. These include providing employees for phone support, meter reading, maintaining equipment and buildings, billing and postage, and all the costs that go with maintaining that system.
  • Taxes/Fees – You may see taxes and fees for the delivery and supply of the electricity. These can vary depending on the city, state or area you live. They cover a wide variety of items such as the cost of the state investing in new energy infrastructures, projects to support the development of renewable energy technologies, conservation, etc.

How Are They Calculated?

Typically, your electric company will send someone to read your meter each month. If a reading isn’t taken, the utility company will estimate your month’s bill based on past use – for example, the previous month or last year’s reading during similar weather conditions. You will notice an ‘E,’ ‘EST,’ or the word ‘ESTIMATED’ on your bill if that is the case. Organizations like the Citizens Utility Board suggest that if your bill was estimated and you haven’t gotten a reading from the electric company for two consecutive months to call your company and ask why.

If I Think My Bill Is Wrong, What Can I Do?

This answer varies from state to state, depending on the type of utility system you have, but typically, you have a few options if you believe your bill is wrong.

  1. Call your electric company. There may be an honest mistake or error with a charge that can be fixed. They will also be able to direct you to a webpage with a glossary of charges (for example, this one from Minnesota’s Xcel Energy) if you have questions about where your money is going.

  2. Contact a Public Utilities Commission (PUC) or a citizen’s task force in your state. In Minnesota, the Minnesota PUC is responsible for regulating public utilities, deciding rates, and deciding if a utility can raise a rate. You can contact them for information or to file a complaint.

  3. Contact your Attorney General’s Office. The Minnesota Attorney General’s Office takes complaints from the public to see if there are any violations to the law, and to check if there are any new issues in the marketplace.

  4. Learn to read your meter yourself. Knowledge is power! This may help you learn more about how your bill was calculated, your peak usage times, and ways to conserve. Here is a very simple step-by step guide on how to read a meter.

  5. Get an energy audit. You may have areas that are sucking up electricity or wasting it without you knowing it. Plus, you can find ways to reduce your next bill, as well.


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