This post is the third in our series about how to save on your energy bills even when you’re spending more time at home, as the entire EnergySage team is, in the wake of the COVID-19 pandemic (here are the first and second.) Continue to check our blog for more ideas for how you can take control of your energy bills in the coming weeks.
Welcome to another installment of Saving Energy with EnergySage! For this installment, Aliza Vaida, one of our Energy Advisors, explains why it’s important to understand the rate you pay for electricity.
Understanding electricity rates
When you pay for electricity, you’re primarily paying for two things: supply (the cost to generate the power) and transmission (the costs to deliver the electricity to your property). Combined, these charges can be expressed as an all-in cents per kilowatt-hour (kWh) rate that you pay your utility.
Utility rates can vary widely depending on where you live and, accordingly, what type of power plants your utility company uses for electricity supply. Residents in states like Hawaii or California often pay more than 30 cents per kWh for electricity, while electricity customers in Washington pay about a third of that, thanks to the availability of hydropower.
Depending on your electricity rate plan, you may pay a fixed rate or time-of-use (TOU) rate. The majority of residential electricity customers in the U.S. are on a fixed electricity rate plan, meaning you pay the same amount for each unit of electricity you use over a given billing cycle. However, TOU electricity plans are becoming much more common throughout the United States, and are already the default option for many homeowners in California. Utilities offering these plans charge a different rate for electricity based on when you use the electricity, varying the rate by the hour, day, and even season when you use electricity.
If you’d like to learn more about how to identify whether you’re on a fixed-rate plan or a TOU plan, take a look at this article.
How to calculate your electricity rate
Electricity bills typically divide your electricity costs into many different line items and components. However, if you’re on a fixed-rate electricity plan you can easily calculate your electricity rate with two numbers: your electricity consumption (in kWh) and your total electricity bill costs.
Electricity rate = $ bill charges / consumption (kWh)
Aliza’s electricity rate = $52.85 / 178 kWh = ~$0.30 per kWh, or ~30 cents per kWh
Pro tip: before calculating this rate, it’s important to make sure you’re not including any bill charges that aren’t related to your electricity usage (such as late fees, charges for natural gas usage, or fixed customer fees).
How to save on electricity costs
In most cases, your utility company cannot simply charge you whatever they’d like for electricity; utilities need approval from the state government–typically a public utility commission–to charge certain electricity rates.
That said, while your state government may have to approve the utility company’s rate schedules, the electricity rate you pay is often out of your control: your home is served by one electric utility company, and one electric utility company only, so you have to rely on them to deliver electricity to your property. However, if you live in a state with a deregulated electricity market, you may have other options to consider for your electricity supply (even though you’ll continue to pay your utility company for electricity delivery).
A deregulated electricity market is one where companies and entities outside of utility companies have the ability to buy and sell electricity. The following states have deregulated (or partially regulated) electricity markets for residential customers:
- New Hampshire
- New Jersey
- New York
- Rhode Island
If you live in one of these states and are a customer of an investor-owned (IOU) utility company, you can likely choose to buy power from a retail energy provider (REP) instead of your utility company. Under this sort of arrangement, your utility will still be responsible for delivering the energy, but the supply portion of your electricity rate will be determined by your REP. Keep in mind that rates offered by a REP may not be any more affordable than what your utility company charges, so it’s important to compare your options before signing a contract. Check out this article to learn more about the types of rate plans offered by REPs.
As a customer in a deregulated electricity market, you may also be able to join a community choice aggregation (CCA) program. CCAs allow local governments to purchase energy on behalf of their constituents. Like with a REP, your utility company would still be responsible for delivering your electricity, but your local government would be able to invest in and purchase electricity for customers in your community. Because CCA plans aggregate buying power, they often offer affordable rates for electricity supply. Additionally, because your local government controls who they buy power from, many towns and cities use CCAs as a way to support and procure renewable energy. However, CCA plans are not available in every state with a deregulated electricity market, and in order to buy electricity from a CCA program, your local government would need to first approve and implement a CCA plan for the entire community.
The best way to save on electricity: solar
If you’re subject to high electricity rates, one of the best ways to save is to install solar panels. When you register on the EnergySage Marketplace, you can receive online quotes from local solar installers. These quotes will take into account the rate you’re currently paying for electricity when calculating savings estimates. Or, for a quick estimate on how much you can save with solar, try our Solar Calculator.