Best for: Anyone who’s looked at their electric bill and immediately put it down in frustration.
Your electric bill looks like it was designed to confuse you. It probably was.
Between line items, fees, adjustments, and charges you’ve never heard of, most people just look at the total amount due and pay it without understanding what they’re paying for.
Let’s fix that. We’ll break down every part of your bill so you know exactly where your money is going.
The Basic Structure
Every electric bill has three main components:
- Energy charges: What you pay for the electricity you actually use
- Delivery charges: What you pay to get that electricity to your house
- Taxes and fees: What the government and your utility tack on
Some states let you choose your electricity provider (deregulated markets). In those states, you’ll see separate charges from your retail electric provider (REP) and your transmission and distribution utility (TDU).
If you’re in a regulated market, one company handles everything and your bill is simpler. But you also have no choice in providers.
Energy Charges: What You’re Actually Buying
This is the cost of the electricity itself, measured in kilowatt-hours (kWh).
One kilowatt-hour means using 1,000 watts for one hour. Running a 100-watt light bulb for 10 hours uses 1 kWh. Running a 1,500-watt space heater for 40 minutes also uses 1 kWh.
Your energy charge might be structured in several ways:
Fixed rate per kWh: The simplest structure. You pay the same rate for every kWh you use. If your rate is $0.12/kWh and you use 1,000 kWh, you pay $120.
Tiered pricing: Your rate changes based on how much you use. The first 500 kWh might cost $0.10/kWh, the next 500 kWh cost $0.12/kWh, and anything over 1,000 kWh costs $0.14/kWh. Heavy users pay more per kWh.
Time-of-use pricing: Your rate depends on when you use electricity. Peak hours (usually afternoon and early evening) cost more. Off-peak hours (usually overnight and weekends) cost less.
Free nights/free weekends plans: Electricity is free during certain hours, but you pay a higher rate during the rest of the time. These plans only save money if you shift a lot of usage to the free periods.
Delivery Charges: Getting Electricity to Your House
Even if you choose your electricity provider, you don’t choose who delivers it. The local utility owns the poles, wires, and infrastructure. You pay them to maintain it.
Delivery charges usually include:
Transmission charge: The cost of moving electricity from power plants to your local area over high-voltage lines. This is usually a fixed monthly fee or a per-kWh charge.
Distribution charge: The cost of getting electricity from local substations to your house over lower-voltage lines. Often billed per kWh.
Customer charge or base charge: A fixed monthly fee just for being connected to the grid. You pay this even if you use zero electricity.
In Texas, these charges are bundled into a “TDU delivery fee” that shows up on your bill regardless of which retail provider you choose. The TDU delivery fee is the same for everyone in your area.
Taxes and Fees
Every bill includes taxes and regulatory fees that fund various programs or government entities.
Sales tax: Most states charge sales tax on electricity. Texas charges 6.25%. Your city or county might add more.
Utility gross receipts tax: Some states tax the utility company’s revenue and pass the cost to you.
Franchise fee: Cities charge utilities a fee to use public rights-of-way for power lines. The utility passes this to customers.
Renewable energy charges: Some states require utilities to support renewable energy programs. You might see a line item for this.
Energy efficiency programs: Many utilities fund programs to help customers reduce energy use. A small fee on your bill pays for these.
These fees are unavoidable. You can’t opt out.
Understanding Your Usage
Your bill shows how many kWh you used during the billing period, usually 28-31 days.
Average usage for reference:
– Small apartment (500-800 sq ft): 400-600 kWh/month
– Average home (1,500-2,000 sq ft): 900-1,200 kWh/month
– Large home (2,500+ sq ft): 1,500-2,500 kWh/month
These are rough estimates. Actual usage depends on:
– How well your home is insulated
– Your climate and heating/cooling needs
– How many people live there
– Whether you have electric heat or gas heat
– How energy-efficient your appliances are
If your usage spikes unexpectedly, check for:
– Extreme weather (running AC or heat constantly)
– Guests staying with you
– A malfunctioning appliance running constantly
– A change in your routine (working from home more)
Reading the Fine Print
Your bill might include confusing notes or adjustments. Here’s what they mean:
Estimated reading: Sometimes the meter reader can’t access your meter. The utility estimates your usage based on past bills. Next month they’ll read the actual meter and adjust the bill.
Budget billing or average billing: You pay a consistent amount each month based on your annual average usage. This smooths out seasonal swings but doesn’t save you money.
Late payment fee: Exactly what it sounds like. Pay your bill on time.
Returned payment fee: If your payment bounces, you’ll see this charge. It’s usually $25-$35.
Connection or disconnection fees: If your power was shut off for non-payment and reconnected, you’ll pay for this service.
What You Can Control (And What You Can’t)
Things you can control:
– How much electricity you use: Use less, pay less.
– Your electricity plan (in deregulated markets): Shop for better rates or structures that match your usage patterns.
– When you use electricity (if you’re on time-of-use pricing): Shift usage to off-peak hours.
Things you can’t control:
– Delivery charges: These are set by your local utility and regulated by the state.
– Taxes and fees: The government sets these.
– Weather: Extreme heat or cold will spike your usage no matter what you do.
How to Lower Your Bill
Here are the things that actually matter:
Big impact:
– Adjust your thermostat: Every degree makes a difference. Set it higher in summer, lower in winter.
– Improve insulation: Air leaks and poor insulation waste money.
– Upgrade to a programmable or smart thermostat: Automatically adjust temperature when you’re not home.
– Replace old HVAC systems: A 20-year-old AC unit uses way more energy than a new one.
– Switch to LED bulbs: They use 75% less energy than incandescent bulbs.
Medium impact:
– Unplug devices you’re not using: Phantom loads from chargers, TVs, and appliances add up.
– Use ceiling fans: They make rooms feel cooler without lowering the thermostat.
– Wash clothes in cold water: Heating water uses a lot of energy.
– Run dishwasher and laundry during off-peak hours (if you’re on time-of-use pricing).
Small impact:
– Turn off lights when you leave a room: It helps, but lights aren’t your biggest energy drain.
– Close blinds during hot days: Reduces heat gain from sunlight.
The biggest energy hogs in your house are heating, cooling, and water heating. Everything else is secondary.
Comparing Bills to Find Patterns
Save your bills for a year and compare them month by month. You’ll see patterns:
- Summer and winter are always higher: AC and heating dominate your usage.
- Spring and fall are cheaper: Mild weather means less HVAC use.
- Unexpected spikes: Investigate what changed.
If your bills are consistently higher than your neighbors with similar homes, you probably have an efficiency problem. Get an energy audit. Many utilities offer them for free or cheap.
Shopping for Electricity (If You’re in a Deregulated Market)
In Texas and a few other states, you can choose your electricity provider. This creates competition and (theoretically) lowers prices.
How to shop:
1. Go to your state’s comparison website: Texas uses powertochoose.org.
2. Enter your ZIP code and average usage: The site shows plans available in your area.
3. Compare the “average price per kWh” at your usage level: This accounts for base fees and rate structures.
4. Read the Electricity Facts Label (EFL): This document breaks down all charges and fees in a standardized format.
5. Avoid gimmicky plans: Free nights, free weekends, and bill credits sound great but often cost more overall.
Most people should stick with simple fixed-rate plans. Variable-rate plans can spike unexpectedly. Gimmicky plans only work if your usage pattern matches the plan structure perfectly.
The Bottom Line
Your electric bill is complicated because the electricity market is complicated. Generation, transmission, distribution, regulation, and retail all involve different companies and costs.
Here’s what matters:
– Understand how your rate is structured: Fixed, tiered, time-of-use, or gimmicky.
– Know your average usage: This helps you compare plans and spot problems.
– Focus on the big energy users: HVAC, water heater, and major appliances.
– Shop around if you can: In deregulated markets, switching providers can save money.
– Pay attention to delivery charges and fees: You can’t avoid them, but you should know what you’re paying.
Your utility company is counting on you not understanding your bill. Now you do.
Read your bill every month. Compare it to prior months. If something doesn’t make sense, call and ask. It’s your money.