Understanding Your Utility Bill - Episode 98

For all of the economic advantages being created by the energy transition, some of that value isn't being fully captured by consumers who don't fully understand their utility bill. As energy prices are rising and these bills are becoming more complex and obtuse, maybe now is a good time to review how utilities are charging for not only the power that they provide, but also the policies that their state regulatory commissions are encouraging.

For further reference:

"The simple way to read your electric bill" - Energy Sage

"How Much Electricity Prices Increase Per Year in the U.S." - Solar Reviews

"Getting Answers: solar and EV charges on electric bills" - Western Mass News

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Transcript

This is Eight Minutes – a podcast helping you understand the energy and climate challenge in just a few minutes – I’m your host, Paul Schuster.

Utility costs are up. A lot. Here in Massachusetts, a kilowatt-hour of electricity costs, on average, over 29 cents. And rates have jumped over 60% since 2020, thanks to increased gas prices and increased demand for power.

If you’re like me, you probably grit your teeth and pay that monthly bill – but it may be useful to understand what, exactly, you’re paying for. What’s IN this utility bill anyway? Supply charges, demand charges, distributed solar or EV charges.

Today, let’s take a few moments to ground ourselves in how to read a typical utility bill and how those charges may be changing in the energy transition.

Eight Minutes – it’s how long it takes the sun’s rays to hit earth – or about the length of time it takes for my nice pristine green lawn to be covered in fallen leaves this time of the year. What did I do with that rake?

Let’s get it on!

The information tucked away in your utility bill can not only tell you a lot about the efforts your state and utility are taking in the energy transition, but it could lead you to make better choices on how your purchasing energy in the first place.

Before I jump into how to interpret these maddeningly complex invoices, let me frame this discussion a bit. First, every state, every utility invoices customers differently. They may bundle gas and power together, or you may get separate bills from each provider of energy that you use. Or maybe you’re on a budget plan, where the utility has estimated your power usage for the year and spread it out across all twelve months in order to keep nasty surprises to a minimum. 

And while the broad strokes of how utilities bill remain consistent … for the purposes of today’s discussion, I’m going to just focus on electricity billing – and on a month to month billing cycle that may fluctuate. And I’m gonna use my Massachusetts bill as a template to help explain some of the moving parts.

The first thing to understand is that there are two major components to your bill, a supply charge and a delivery (or transmission and distribution) charge. The supply charge is the cost of the generated power – whereas the delivery charge is what it cost the utility to get that power to you in the first place.

Most consumers rely upon their utility to purchase the power on their behalf. Some of that power could come from utility owned generators – or some of it could be from the wholesale market or outside power providers. The utility is usually in charge of coordinating a portfolio of energy supply for their customers.

But, in some states, such as Texas or California or Massachusetts – the customer can actually purchase their power from a DIFFERENT provider than the utility. These retail providers could entice you with a lower rate than the local utility – or maybe ask you to pay a bit more in case you want green or clean power. If you’ve elected to buy power from a third party, THAT’s your supply charge. However – the utility STILL needs to deliver that power and the delivery charge part of your bill isn’t going to change.

That delivery component is supposed to cover the capital expenses that the utility has invested into their power distribution network. Not just new lines or substations, but efforts such as undergrounding to make the grid more resilient in the face of extreme weather events. That totality of invested capital is spread out and socialized across customers to even out the costs – and is based on how much you consume. Use less power, and you’ll pay less for the delivery charge too.

Ok – a couple of things to note about supply and demand charges, at least from an energy transition perspective. First is that if you own solar on your roof, you’re NOT paying for power – either supply OR demand … at least for the power you use from your array.

But if you don’t use ALL of the power being generated, some of that electricity is sent back to the grid through a mechanism called net metering – and THAT process could be different depending on your state. For instance, my solar panels sell power back to National Grid at the full retail rate – supply + delivery costs. But in California, their recent Net Billing Tariff, also known as NEM 3.0, only compensates the SUPPLY portion of the bill. And some states like Alabama don’t compensate solar owners at all. Knowing the Net metering situation in your state can help you determine the payback on a future solar install.

Secondly, utilities worry about the delivery charges a LOT in the energy transition. Why? Because as more homes and businesses reduce their electricity demand through energy efficiency or by installing solar panels – that capital cost of the distribution network needs to be spread across fewer and fewer kilowatt hours. Which means the cost per kwh is going to go up.

The communities that are likely to be most affected by that? Those disadvantaged or low to moderate income (LMI) communities where investing in new solar simply is too expensive. As wealthier neighborhoods transition – these LMI customers can’t simply be expected to pay a greater share of the existing distribution grid.

Now – that’s a conversation for another time, but it’s worth noting as it comes to your utility bill.

Some other notes on the supply portion of your bill is that you may see a “DEMAND charge”. Lots of businesses, in particular in New York or California, may see that this could be a pretty significant cost – so what is it? Essentially, this is the utility charging you for the spikiness of your electricity needs. See, the demand for electricity is higher during the middle of the day than in the middle of the night – and is even higher during the middle of hot summer months when the air conditioning is operating than during a cooler winter month. To meet those periods of spiky demands, the power grid needs to invest in expensive “peaking” generators. And the cost of those generators – well, some states have determined that instead of spreading those costs across ALL customers, even the ones who don’t use power during those spiky times – instead, the utility can charge customers who ARE using that pricy power … this “DEMAND” Charge.

Other jurisdictions approach peak power differently, and you may be on a Time of Use rate in your area. In which case you’ll see TWO supply charges on your bill – one for non-peak hours and the other for peak hours. Understanding HOW and WHEN you’re using power can help you shift your usage – and lower your costs, as well.

For residential customers, there isn’t a lot you can do to shift the rates you’re paying for power – except in areas where you can choose a retail provider for your supply … and either consumer less electricity by utilizing energy efficiency measures or … SHIFT the time you’re using electricity to a period where costs are lower.

Businesses, though, may find that there are more options on the type of tariff that they are on for their power usage. Getting onto the RIGHT tariff – which is optimized for when and how a business uses power – is extremely important. So important, in fact, that an entire cottage industry has popped up helping businesses assess the tariff that they SHOULD be on, rather than simply accepting the utility’s default option.

And then there are other costs embedded in a power bill. Things like Energy efficiency charge or distributed generation charge. These are called Public Policy charges are represent mandates from the state to charge for certain costs.

For instance, you may see an energy efficiency charge on your bill. Which is there because your state has determined that it wants to emphasize energy efficiency measures – and is willing to offer rebates and incentives via the utility to do so. Those efficiency measures need to be paid for, though, so the utility charges consumers. In Massachusetts, this used to be hidden in the supply charge, but is now called out specifically to show how it affects your bill. For customers who take advantage of efficiency efforts – the overall electricity consumption comes down and they pay less for not only this portion, but for power in general – while those customers who DON’T take install energy efficiency programs end up comparably more on the other side.

Other public policy charges could include EV rates – to pay for rebates associated with EV charging infrastructure and equipment. Or a renewable energy charge where the utility is paying a premium for energy in order to meet the renewable performance standard of the state. Or, in New Jersey, you may see a RGGI (or reggie) charge to show their participation in the northeast carbon markets.

And then you may see something like a public benefits charge – which, in Maine, at least, represents the difference between what a utility pays for certain types of power – and the price that they are able to sell that power to the customer for. For instance, they may be buying clean, community solar power at twenty cents a kilowatt hour, but can only sell power at 5 cents a kilowatt hour. The Maine commission determined that the 15 cent gap was worth it from a public benefits perspective – and allows the utility to charge for that gap, specifically for the power coming from that solar project.

Make sense – I know … it’s complicated. Utility rate structures are obtuse, complex, opaque mechanisms that have just as much to do with promoting state level POLICY, as they do about compensating for utility costs and profit. But a good understanding of your utility bill can be essential in valuing your own energy transition – whether it be in installing solar panels, taking advantage of energy efficiency standards, or switching rates in order to afford that EV charger being installed in your garage.

I’m Paul Schuster – and this has been your eight minutes.