By Jeffrey Yago, P.E., CEM

Issue #112 • July/August, 2008

In Part 1 of this series of articles, I hopefully made you aware that your home’s utility costs should be more of a concern than what you are paying to fuel your vehicle. It’s easy to know today’s cost-per-gallon for gasoline since it’s posted on large lighted signs all over town. But trying to figure out your home’s utility costs, and if the rates are changing or if you are just using more power, takes a major effort.

Typical electric bill layout
The typical home’s electrical meter

Let’s start with your electric bill’s layout. Each utility company offers multiple “rate schedules” which are governed by your state’s Utility Regulatory Commission, which must be approved before they can be changed. Some rate schedules are based on the size of your electrical loads and voltage requirements and these rates are adjusted up and down depending on the time of day and month. These rate schedules are usually reserved for businesses and institutional customers, and the higher daytime rates penalize those customers having large upswings in their electrical demand at peak load periods. Since most utilities experience their highest demand during summer afternoons when everyone is running their air conditioners, summer electric rates may be higher than winter months or at night.

Most homeowners for a given utility will fall under a “residential” rate schedule, although some more innovative utilities are offering special discount rate schedules. Customers willing to let the utility remotely shut off electric water heaters or air-conditioners for short periods during peak seasons can usually receive a lower rate year-round since reducing their peak load when requested lowers the strain on the utility’s electric distribution system.

Your first step in lowering your home’s monthly electric costs is to contact your local utility and request a description of all rate schedules they offer to homeowners, farmers, or ranchers, depending on your situation. However, before you consider changing to another schedule, we need to review how to understand your monthly electric bills.

Electric bill format

A typical residential electric bill will usually be divided into three or four separate sections, although each utility is different. The top section will identify your account information, the date the bill is due, the amount due, and any outstanding balance from a prior bill. Sometimes this section will also include a summary of the last 12-months’ usage. If this history is not provided, you will need to dig through your old receipts for your past 12 months of electric bills before we can continue. If you did not save these, call your local utility and have them send these to you. Don’t worry, there is no charge and they are required to provide this information.

Typical electric bill layout
The next section of your utility bill will show the electric meter reading for last month and this month, the difference between the two readings, and the total kilowatt-hours (kWh) used during this period. A kilowatt-hour is 1,000 watts of electric load that is operating for one hour. For example, most microwave ovens draw 1,500 watts at full power. If you heated something that took fifteen minutes to cook, this consumed 0.375 kWh (1.5 kWh × 15 min./60 minutes). You need to really review your bills because some electric meters have dial reading that must be multiplied by a “meter constant” to convert these dial readings into billed kilowatt-hours. As a check, your electric meter should have a tag under the glass cover indicating if a multiplier is being used, and you should verify this matches the multiplier on your bill, as mistakes are not uncommon. I had an institutional client whose monthly readings were being multiplied by 100, not the 10 multiplier indicated on the meter.

Next, notice the dates. What you call your “March bill” likely covers the previous month, so your current bill should be allocated to the period it actually represents. Unfortunately, most utilities take their meter readings at different times of the month, so the March bill in our example could be for the period of February 3 to March 2, or January 30 through February 28, or any combination of start and end dates. In most cases, which month to allocate the actual usage will be fairly obvious, but this can get really complicated if the readings are taken near the middle of the month. We will deal with this later.

The next group of numbers breaks out your metered usage by different charges which will include a basic monthly service charge, usually in the $8 to $25 per month range, which will be the same each month. This “meter” charge will be billed each month even if you do not use any electricity.

The next line item is your metered usage multiplied by the standard cost per kilowatt-hour under this rate schedule, and this could total anywhere from a few dollars up to $200 or higher depending on your usage. Some electric rates are “tiered” and you will see the first few hundred kilowatt-hours multiplied by a high rate, and the remainder billed at a lower rate. Next will be one or more additional line item charges with titles like “distribution charge” or “energy supply charge.”

After the 1980s the federal government deregulated the electric utilities and forced them to break up into separate companies just like they did with the phone company. The idea being if the customer paid the local electric distribution, the cross-county transmission line operator, and the power generating plant separately, the customer would be able to select from competing energy suppliers even though they would all share the same electric lines. The hope was this would promote lower rates through competition. In reality, for most customers, all this did was cause their electric bill to become a “Chinese menu” of undecipherable fees, unrecognizable line item charges, with few alternative electric suppliers offering lower rates.

The last section of your bill will be the most eye-opening. Most government agencies attempt to squeeze more and more revenue from us while trying hard to hide these endless tax increases or “fees.” To increase tax revenue without actually increasing personal tax rates, legislators got the bright idea of taxing the utilities instead; thinking the general public would applaud taxing these big nasty corporations instead of individuals. However, as each new local, state, and federal tax was levied on the electric utilities, they of course just passed the costs on to all of their customers as expected. However, the utilities got the divine inspiration to show the added “fees” clearly itemized on each customer’s monthly bill.

If you are lucky, your utility will still list these added taxes and fees at the end of your bill as separate charges, and this will really make you mad when you see how many there are. You may find a charge added for county sales tax, state sales tax, utility consumption tax, city use tax, and other local fees which are just passed on for you to pay. What’s all this got to do with just trying to buy some electricity?

Of course the legislative bodies started getting irate calls from utility customers once they could see all the additional taxes and fees being passed on to them when they thought they were supposed to come out of the utility’s profits. The legislators in turn began making new rules that no longer allowed these line item charges to be shown separately. This may be why many of the individual line items are almost impossible to understand, but either way, you can see that your monthly bill may include up to 10% in tacked-on taxes and fees.

Monthly usage review

Now back to analyzing your monthly usage. We first need to identify how your usage varies from month-to-month separately from the dollar charges, or you will never be able to determine what is causing your monthly costs to rise.

Now we need to separate out what you are not using for heating and cooling. If you heat with wood, gas, propane, or oil, your lowest monthly electric bills will occur during the winter. If you have air conditioning, your highest usage will probably be in late July or early August, but remember, the actual bill for this usage will not show up until the next month. If you have a heat pump or use electric heat in the winter and air conditioning in the summer, you will have two peak months—one around January/February and one in July/August, depending on your local weather conditions.

Typical kilowatt usages for a small farm, a medium-size farm, and a large home.
Typical kilowatt usages for a small farm, a medium-size farm, and a large home.

It’s obvious that if we can identify one or both peak usage periods, adjusting our inside thermostat setting will reduce these heating and cooling peak charges. But, what about your non-heating and non-cooling usage? What is this costing and how do you reduce it? This is important because this almost constant load is billed every month, year round and cannot be reduced by changing your thermostat.

Now take a piece of graph paper (or Excel spreadsheet if you are good with computers) and make equally spaced vertical lines across the page to represent 12 months. Going left to right up the page make equally spaced horizontal lines to represent kWh usage. For example, if your largest bill is 2,200 kWh in August, your top line should be 2,200 or higher, with the smallest usage line smaller than your lowest usage. Now using your most recent 12-month collection of bills, graph each month’s usage as shown in our examples. It does not matter if your actual bills do not start with January and end in December like the graph, as long as you have at least twelve different months.

For example, your bills may start with April, and end in the following year. You would still enter the bills on the graph starting with January on the left and December on the right. You will find this makes more sense if you enter the bill on the graph for the actual period the bill represents, not the date of the bill. For example, you may be wondering why your February bill is so big when it has the fewest days and may be warmer than January. Actually, the February bill is for part or all of the longer colder month of January.

After you have done this, connect the points and you will find some interesting things. Note in our examples on the previous page of a large home, a small farm, and a medium-size farm how they all had a very high peak during the winter. These were taken from real bills of real clients. The large home was located in the northeast and used electric heat, while the small and medium-size farms had wood heat in the home, but used electric heaters to heat areas where small animals and chickens needed space heat and drinking water needed to be protected from freezing. Note how the large home had a large peak in July and August from air conditioning, which does not occur for the farms which had little or no air conditioning. We already said if your winter peaks and summer peaks are too high, you will see significant reductions for these months by holding your thermostat at a less demanding setpoint.

Now it gets interesting. Using the large home as an example, which may reflect your own home’s usage pattern, note the low usage in the spring and fall. These are called “transition” months, which are those periods when it’s too warm to require heating, but not warm enough to require air conditioning. You need to identify this low point or points on your own graph as this is what you are paying each month to operate your non-heating and cooling loads like lights, refrigerator, electric cooking appliances, well pump, and entertainment equipment.

See what you are using each month for all this unidentified electrical “stuff.” Now go back to your electric bill and take the grand total cost for the most recent month, and divide it by the total kWh billed for the same month. This is your average cost for electricity and this cost per kWh could vary from month-to-month. In the example of the medium-size farm which includes a farm house, a large barn, and several equipment sheds, this “base load” is 1,400 kWh. Their most recent bill of 1,868 kWh costs $171.86, which equals $0.092 per kWh ($171.86/1,868) or 9.2¢ per kWh.

If we multiply this rate times the 1,400 kW “base load” shown for this client, this means they are paying $129 per month, each month, for all other electrical usage except heating and cooling which cost them $42.86 this month ($171.86-$129). For comparison, the red line on each graph is the average monthly usage not including the December and January heating spikes.


In the final Part 3 of this article, I will help you identify what to look for in your monthly base load that can be eliminated or substantially reduced, and what each appliance is costing you to operate. Perhaps it’s time to buy some new appliances? It may be easier to take the plunge after you see what your existing appliances and lights are costing you to run, just like when you bought that new vehicle once you saw what it was costing you for fuel. In the meantime, make a list of all the major electrical appliances you have.

We are after the “low hanging fruit” that have a large electrical demand, so don’t worry about small loads like your cell phone charger or DVD player. These can also really add up, but let’s tackle the big ticket items first. We are interested in refrigerators, freezers, electric stoves, electric water heaters, well pumps, air conditioners, electric space heaters, and all those interior and exterior lights. Make a note of the watts for each if given, or the volts and amps printed on the nameplate if this data is listed instead of watts. Remember from past articles, watts = amps × volts. Therefore, an appliance that indicates it operates on 120 volt AC power at 6.4 amps will draw 768 watts of power (120 × 6.4).

Good hunting and get ready to reduce your electric bills!

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