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Understanding Electricity Bills

Ask This Old House home technology expert Ross Trethewey and plumbing and HVAC expert Richard Trethewey discuss changes to electric bill payment structures.

In the past, depending on where you were in the country, utilities were often publicly owned or publicly controlled at every stage — the generating of electricity, the transmission of that power, and the delivery to the consumer.

Many states and utilities have spent the last 20 years moving to a deregulated model, which allows for competition at all stages in the electrical process and could lead to lower rates for consumers. But it can also lead to more confusing billing structures. Watch this video and read on to learn more about common electrical billing structures.

What is a Fixed Rate Electrical Plan?

The most common bill is called a fixed rate usage per kilowatt hour, which means that you pay a certain rate for all the electricity you use in the house.

For example, most people understand that electrical devices consume watts. If you think of a 100-watt lightbulb, that wattage is only measuring the power consumed at that moment, but not over time. If you ran that lightbulb for one hour, it will have consumed 100 watt-hours or one-tenth of a kilowatt-hour.

Demand Charges or Peak Pricing

Some electricity bills are structured as demand charges or “peak pricing,” which means you pay a fixed amount in a certain tier of usage based on the most electricity used in a 15-minute period for the month.

This is a pretty uncommon bill payment structure, and it can be confusing for homeowners, as there’s often no way to know when you’ve hit peak consumption and you’re surprised with a large bill at the end of the month.

What is Time of Use Billing?

A more common bill payment structure is called time of use. With this structure, the electricity rate changes depending on the time of day. This usually means that when there’s a higher demand across the grid for energy, like around dinnertime, for example, the rate is higher than when there’s less demand.

In a state like Texas, which isn’t connected to the rest of the country’s grid, the power that’s made in Texas stays in Texas and is therefore locally governed and not subject to the same federal regulation as other states. Because of huge wind power infrastructure, Texas makes an enormous amount of renewable energy—energy that it isn’t always using and that it isn’t set up to ship elsewhere or to store.

Whether you’re in Texas or a place that uses time of use billing, there’s a financial incentive to trying to time-shift as much of your usage as possible until a time when electricity rates are either free or reduced. If your bills are structured this way, it’s helpful to analyze your electricity usage and minimize electricity use during high-demand hours.

Ross recommends breaking down devices into three categories to determine if they can only be used during low-demand hours:

1. No control devices

There are some devices in the house that need to run no matter what time it is, like a well pump or the refrigerator. Don’t change the usage of these devices.

2. Some control devices

These are devices that need to be used, but they can be tweaked a little. One obvious example is an HVAC system, that can be dialed back and forth with setbacks to prevent them from running at full speed during the high demand part of the day.

3. Full control devices

these are devices that do not need to be used during high-demand hours, like a dishwasher (which can be programmed to run through the night), charging an electric car, etc.

In all cases, be mindful of “phantom power”

These are devices that are using electricity even when they’re off, like clocks, microwaves, printers that are plugged in, etc. Try plugging devices into power strips and keeping those power strips turned off when the appliances aren’t in use.