How Do Electricity Bills Work?

Understand How Is Electricity Billed & How Utility Bills Work

Whether you rent or own your home, one thing is for sure: we all receive energy bills at the end of each month. These bills can be the source of much confusion and frustration because they vary greatly from month to month. And when it comes time to pay our bills, we can often be left with several questions: How do I break down my electricity usage? Why is this month’s bill so different from last month’s? Which part of my energy usage contributes the most to my bill? Am I paying more than I should be paying?

In this article, we will look at the various protocols utility companies use to charge for electricity bills. We’ll explore which part of your bill might be the most expensive and then tell you how you can work to lower your bills.

How do electricity bills work?

Your electricity usage is tracked by a meter that records how much electricity flows into your home. Your utility company then reads your meter every month to determine your monthly usage. If someone doesn’t come to take your reading, and you don’t give them one, they will often bill you based on your estimated usage.

The average American household uses around 908 kilowatt-hours (kWhs) of electricity each month. Many utilities charge their customers on an ad hoc basis. In other words, they bill each household based on the amount of electricity they use. You can calculate how much you owe by multiplying your utility company’s rate per kWh by how many kWhs you used that month — it’s a simple as that!

Utility companies can also charge their customers using a variety of methods. One method commonly used by utility companies is a tiered rate or step rate. This is where you pay less depending on how much energy you use. Once you go over a particular tier, you are charged a higher rate.

There’s also a time-of-use rate, and this involves charging customers higher rates during peak times, for example, from 8 am to 10 am and 4 pm to 8 pm. This is a tactic some utility companies use to attempt to control energy demand throughout the week. Some companies take this system a step further and implement tiers within these rates (for example, an off-peak, mid-peak, and high-peak period each day).

Some companies also operate peak day prices, which are usually highest on weekends when more people are at home.

What costs the most on your electric bill?

In the summertime, your air conditioning is likely the most expensive part of your electricity bill. The average central air conditioner unit costs about $60 per month, depending on where you live. If you live in a particularly warm climate and run your AC all year round, you may end up paying up to $700 a year for your AC alone. If you live in a northern state or anywhere that sees temperatures drop in the winter, heating can instead be a big offender.

Your electric water heater is next on the list of highest contributors to your electricity bill. Water heaters usually require less energy than an air conditioning unit, but they work all year round to meet your washing needs.

What affects your electric bill the most?

Alongside your heating and air conditioning, your refrigerator is an appliance that is always in use no matter the season. This is also true for your washing machine, dryer, oven, stove, and any additional freezers you may have.

Many utilities also operate seasonal prices, charging more during winter and summer. Because these two seasons require the most energy through heating and air conditioning, it costs utilities more to produce enough energy to meet demand. Many companies then pass this added cost onto their customers to continue making a profit in extreme weather months.

As with any service, you pay for the product (energy) plus the delivery. Utilities often add extra costs like grid connection fees, distribution service charges, late fees, and low-income assistance fees. These additional fees will all be broken down on your bill and added into your total each month, but your utility company should notify you of these extra costs upfront.

How much is an electric bill for a five-bedroom house?

The cost of electric bills is unique to each house. For example, end-terrace houses use a little more energy than mid-terrace houses because their heat is not retained by another house’s walls. Unsurprisingly, the energy usage and incurred cost of each property generally depend on the number of residents.

A property with five or more bedrooms tends to use three or four times more gas and over twice as much electricity as a property with one bedroom. More specifically, an average five-bedroom house with five adult residents uses about 6,700 kWh of electricity and 25,400 kWh of gas.

While average figures are helpful, it’s good to note that each household’s use can vary significantly. Some households are made up of all adults who leave for work every day, some have children, and some may be all students. Different daily lifestyles can all have an impact. The average energy bill also depends on how many hours someone is home, whether they cook all their meals, whether the property is well insulated, in addition to several other variables.

Why has my electric bill been higher during lockdown?

As we all find ourselves spending more time at home than ever before because of the COVID-19 pandemic, we’re likely using a lot more energy. Instead of going to work and working on a work laptop, we’re walking into the living room and plugging in our own laptops. We’re replacing our morning takeaway coffees with a stroll to the kitchen and a flick of a switch.

To put that into perspective, someone who works 9-5 each day and has a 30-minute commute each way is out of the house for at least nine hours. If that person switches to working from home, that’s nine additional hours of lights being on, kettles being boiled, and food being prepared.

It makes sense that the more time we spend at home, the more we’ll have the lights, heating, and gas on.

How can I lower my electric bill?

Of course, the most obvious way to reduce your monthly electricity bill is to use less energy. Here are some ways you can be more sensible with your daily energy usage:

Turn down your thermostat. It’s cheaper to run your heating a few degrees cooler than it is to crank up the heat for a short blast. Short, intense blasts of heat require more effort from your boiler and often waste energy.

Think of your energy usage when you do your laundry. Washing clothes at 30 degrees is far more efficient than using hotter water. Unless you’re disinfecting your towels, clothes, or bedsheets, any temperature higher than that isn’t necessary.

Make sure your home is well insulated. Huge amounts of heat leave a building if it isn’t properly insulated, so check that your doors, windows, and walls are free of any holes or cracks that could let out heat. A good, long-term way to ensure no heat escapes your home is by installing double glazed windows. A shorter-term solution is to make sure your curtains are closed at night and to use caulk or door snakes to reduce draughts coming into your home.

Switch to energy-efficient light bulbs. LED light bulbs are typically the most efficient and can add to your monthly savings.

Only fill up the kettle with as much water as you need. Staying at home all day means lots more tea and coffee, but kettles have a high power-rating, so only boil as much water as you need rather than filling it to the brim every time.

Sure, you can live carefully and use less energy over a month, but is there a way you can continue to use the same amount of energy and pay one fixed price every month?

There is indeed! By switching to a utility provider that works with renewable energy, you are far more likely to be able to sign up for a fixed monthly bill. The price of nonrenewables tends to fluctuate, especially given how much more competitive renewable energy has become recently. Solar power and wind energy have become far more dependable in recent years, allowing utilities to provide customers with stable prices all year long.

Inspire is one of those companies, and we are here to make your energy experience simple and seamless. We know the importance of reducing our carbon footprint as individuals, households, states, and nations. We know that renewable energy is the way forward, and that’s why we’re on a mission to make clean, sustainable energy accessible to all our customers. And you’ll pay the same amount every month, regardless of your usage, so that you can say goodbye to surprises on your monthly bill.

Switch to a custom Inspire Clean Energy plan and make a positive impact on our planet today!