How Fixed Charges Impact your Electric Bill

When you look at your electric bill, you expect to see lower costs associated with lower electricity usage. Unfortunately, this expectation is not always true. The bills should show two costs: the fixed cost associated delivering electricity and a cost per kilowatt. As homeowners and business owners upgrade to high efficiency light bulbs and better insulation, the number of kilowatts used decreases. However, the fixed cost in your area may be increasing.

Consumer Reports shows that utility companies in over two-thirds of U.S. states have proposed an increase in the fixed cost of electricity. Thirteen states have fielded proposals for more than doubling the fixed cost of delivering electricity. Why the hike in prices? Utilities are losing money as people upgrade to more efficient devices and insulation. The utility companies are delivering less kilowatt-hours of electricity. To make up for the deficit, they propose to raise the fixed cost associated with delivering electricity.

Unfortunately, this tactic affects low-power-usage households or businesses more than high-power-use ones. Let’s say that the fixed cost for delivering electricity is $10. One household, Home A, uses 1000 kilowatt-hours and a high efficiency household, Home B, uses half (500 kilowatt-hours). If they are both paying $0.10 per kilowatt hour, inefficient Home A is paying $110 and efficient Home B is paying $60. The high efficiency household is paying less money, but it’s paying more for the electricity that it uses. If you combine the fixed cost and kilowatt-hours and divide by the number of hours used, Home A is paying $0.11 per kilowatt hour and more efficient Home B is paying $0.12 per kilowatt hour. Essentially, Home B is paying one cent more per kilowatt-hour than Home A, even though  it is using less energy. When you use less electricity, increases in the fixed cost impact your bills more.

There are ways to combat this hike in prices. In many areas, the utility prices are set or directed by the government. Voting down legislation that increases the fixed cost could save money for homeowners and business owners. Another potential solution is to convert to off-the-grid power generation, like solar panels. As a long-term solution, this may be the better one because utility companies are likely to keep raising prices as they lose customers to off-grid technologies. To maintain company revenue, those that are left on the grid might end up paying more in fixed costs to electric companies.

Homeowners and business owners should be aware of any changes in the fixed cost of delivering power to their location. An increase in fixed costs can negatively impact the amount that a low-power home or business is paying for electricity usage.

Posted On 13 Mar , 2017