Article 3: Reading Your Electricity Bill: A Beginner’s Guide

You might not give your electricity bill much thought—except perhaps to lament how high it is—but electricity bills actually provide a lot of valuable information to inform the process of installing solar.

For solar professionals, these bills are an easy way to quickly understand how much energy a customer uses, which is a key factor in determining what size PV system will meet their needs. They also show how the local utility company calculates a customer’s electricity charges, which can have important design implications.

For homeowners or businesses considering solar, having a deeper understanding of the information contained in electricity bills can offer insights into whether installing solar makes sense, as well as whether switching to another billing plan may increase savings.

In this article, we explain the terms, sections, and calculations in an electricity bill and how these change when a customer installs solar. In the next article in our Solar PV Education 101 series, we explain how this information can be used to size a solar installation.

Rate Plans

As you probably know, an electricity bill is a charge for the electricity a home or business consumes. This consumption is measured in units called kilowatt-hours (kWh) and customers are charged a per-kWh rate. These rates differ across utilities and are calculated differently depending on the customer’s “rate plan.” Rate plans specify the rules for how customers’ bills are calculated, and utilities typically offer multiple types.

Common rate plans include fixed rates, time of use (TOU) rates, and tiered rates. While a fixed rate plan charges the same amount for every kWh consumed, under TOU rates and tiered rates the price per kWh changes depending on the time of day (peak vs. off-peak) or the total amount of energy consumed, respectively. (For more in-depth discussions of different utility billing approaches, see our Solar Utility Bill series.)

A customer’s rate plan will determine what is displayed in the different sections of their bill. It also impacts how much a customer pays; depending on their energy consumption patterns, customers may pay more or less for the same amount of energy under different plans.

Utility Bill Sections

An electricity bill is broken down into several different sections, each of which provides important information. While the names and contents of each section often differ depending on the utility, we explain some of the most common sections below:

Account Summary

The Account Summary generally appears on the front and center of the bill. This section provides an overview of the account status, including the previous account balance, any payments made on the previous balance, and the new amount owed for the current billing period. If the customer gets electricity and gas from the same utility, the Account Summary will include charges for both of these services.

Bill Details

This section shows the number of kWh the customer consumed during the billing period and the rate they pay per kWh. What is shown in this section and how it is formatted will change depending on the utility and rate plan.

Electricity Charges Breakdown

The per-kWh rate shown in the “Bill Details” section is made up of many smaller charges. In addition to covering the cost of the energy consumed, some of these charges are used to maintain and upgrade the electric grid and to fund other state-sponsored energy initiatives. The names and amounts of these electricity charges vary by utility, but generally include a generation, transmission, and distribution charge.

·       Generation Charge: This charge supports the cost of producing the electricity used.

·       Transmission Charge: This charge supports the cost of transmitting electricity from power plants, over high-voltage lines and towers, to the distribution system.

·       Distribution Charge: This charge supports the cost of the lower-voltage system of power lines, poles, substations, and transformers that connects to homes and businesses.

Usage Profile

Many utilities provide a monthly usage profile, showing a customer’s total consumption each month over the past year. This gives a good visual representation of how much energy they consume throughout the year and sometimes even compares the current year’s consumption to that of years past.

How Electricity Bills Change with Solar

When a homeowner or business in the India installs solar panels, they will typically become a net metering customer. Net metering is a policy used throughout most of the country that credits solar customers for excess energy produced by their solar panels. This changes the way these customers’ bills are calculated. After installing solar, a customer’s bill may include some of the following terms:

·       Minimum Delivery Charge: This is a charge that some utilities require solar customers to pay to support the cost of maintaining and upgrading the grid. This charge ensures that enough funds are available to maintain the grid in the case that solar customers produce enough energy to pay nothing for electricity.

·       Net Usage: This represents the total electricity consumption minus the total amount of electricity sent back to the grid by the solar installation. Net usage may be represented differently for customers on a time of use (TOU) rate plan. This is because the utility separates the day into “peak” and “off peak” hours, and charges different rates for energy used during each time period. In this case, net usage may be split into “Net Peak Usage” and “Net Off-Peak Usage.”

Additionally, the timing of bills may change after installing solar, depending on the utility. Some utilities bill solar customers every month, while others bill on an annual basis. This annual statement is sometimes referred to as a “true-up,” and reconciles the customer’s energy production and consumption in a single statement at the end of a 12-month period.

If you’re new to the solar industry, getting to know the nuances of electricity bills can be a helpful starting point for understanding other aspects of the solar design and sales process—like how to size a solar PV system (which we delve into in the next article in this series). As a utility customer, understanding your electricity bill is an easy way to identify potential savings and can help determine whether installing solar makes sense for you.