If you want to keep your energy costs within your budget, learning about your charges and how they’re calculated is a crucial first step. Most energy bills break down your fees per month but use terms that can be unfamiliar to many homeowners. Manage your monthly energy expenses by familiarizing yourself with these terms and how they can affect your bill.
Understanding your electric charges starts with discovering how much energy you’re using every month and how it’s calculated. These charges vary between suppliers, but here are some of the most common.
There are a few definitions you’ll need to familiarize yourself with to fully understand the charges on your electric bill.
On your electricity bill, your provider takes your consumed energy in kWh and multiplies it against your rate to calculate your power supply charges. This represents how much it cost for the energy you consumed during your service period — usually the span of one month. Power supply charges are typically listed near the top of your bill, often as the first charge.
Your kWh rate is structured in one of three ways:
Besides the power supply charges, there are a few other common fees to expect on your monthly bill.
The tax percentage on your electric bill varies by state. For example, sales tax for utilities in Michigan is 4% for residents and 6% for businesses. Some organizations are exempt from taxes on energy bills, including religious, educational, scientific and charitable.
Most suppliers break down taxes clearly on a bill or within total monthly charges. In a breakdown of your costs, taxes are typically shown as the final charge before the total.
Some states have mandated surcharges to help cover the costs of energy waste reduction programs or low-income assistance relief. These surcharges will often appear toward the bottom of your bill before taxes are calculated.
Callout: Electricity averages for household items
Wondering where the bulk of your electric bill is coming from? Generally, appliances that create heat — such as a clothes dryer, oven or space heater — use the most electricity in a standard residential home. Outdated appliances can also add to your charges.
| Household item | Hours used per day | Cost per month |
|---|---|---|
| 17″ Laptop | 8 | $2.81 |
| Electric stove | 2 | $12.08 |
| Refrigerator (Energy Star rated) | 24 | $2.90 |
| Refrigerator (era 1980s) | 24 | $16.67 |
Natural gas is often used to heat your home and hot water tank, as well as some stoves, fireplaces and clothes dryers. While some charges are similar to your electric bill, others are specific to natural gas consumption.
Natural gas is billed in therms. A therm is a measurement of heat equivalent to 100,000 BTUs (British Thermal Units) or 100 cubic feet of natural gas, according to the US Energy Information Administration.
The rate you pay per therm varies depending on demand, your location and whether you use a retail provider or utility company. To calculate your bill, your provider takes your natural gas consumption for the month and multiplies it by your rate. This charge is typically listed near the top of your bill, often as the first item.
Besides the gas you consume every month, there are other common fees you can expect to see on your bill.
Taxes on your gas bill are usually calculated the same way as on your electricity bill. Your state or local governing body sets the tax percentage. For example, the state of Texas does not impose sales tax on residential gas consumption, but several cities within the state do.
Taxes are calculated at the end of your bill and often appear as the final charge before the total.
Like your electricity bill, some governing bodies impose mandatory environmental or charity fees on your gas bill. These fees help pay for programs that assist low-income, retired or disabled residents with covering their energy bills, while others contribute to programs that lower our carbon footprint.
Select states across the US have introduced deregulated energy, allowing consumers to purchase their energy from retail providers rather than utility companies. Since this creates a competitive market, some companies can offer a lower rate overall, potentially saving you on energy costs.
However, studies have shown that a retail provider isn’t always the best choice. For example, residential retail consumers in Maryland paid nearly $400 million more on energy bills from 2015 to 2019 than had they gone through a utility company. As always, do your research to determine if deregulated energy best suits your needs.
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Weatherizing your home can lower your utility bills by up to 10%, according to DTE Energy. A registered energy auditor can inspect your home, estimate your energy usage and efficiency and identify problem areas.
Some typical suggestions from energy audits include:
The deregulated energy market offers opportunities for consumers and businesses to purchase the energy that powers their homes directly from suppliers.
Flip the switch on your utility company with a new energy provider. Here’s how.