What an electric bill is actually made of
An electric bill has three structurally different parts, and confusing them is why the number at the bottom rarely matches anyone's mental estimate. The fixed service charge is a flat monthly amount you pay for being connected. It does not move when you turn things off. The supply charge pays for the energy itself, and in most residential tariffs it is billed through blocks, so the first several hundred kWh cost less per unit than the last. The delivery charge pays for the wires and is billed per kWh at a single rate regardless of tier. Tax and percentage surcharges then apply to the whole thing.
That structure produces a number nobody publishes: the all-in price you actually pay per kilowatt-hour. It is not your tier 1 rate, not your tier 3 rate, and not the sum of supply and delivery. It is the total bill divided by the kWh used, and it changes every month because the fixed charge is spread over a different amount of consumption. In the worked example below, a household with a tier 1 rate of 11 cents pays an all-in 19.26 cents.
The second number that matters is the marginal price — what the next kWh costs. On an inclining-block tariff, that is the top tier rate plus delivery, grossed up for tax, and it is always at least as large as the all-in price when tiers rise with usage. This is the figure to use when you evaluate anything that changes consumption: a heat-pump water heater, an EV charger, or leaving the air conditioning at a different setpoint. Using the all-in price for that decision understates the saving.
How the tiers fill, and why the fixed charge changes everything
Blocks fill in order. If the first tier is 500 kWh and you use 900, the first 500 are charged at the tier 1 rate and the remaining 400 at the tier 2 rate. Nothing reaches tier 3 until you pass the first two tiers combined. This is an inclining-block tariff, and utilities use it to keep a basic quantity of electricity cheap while pricing heavy use closer to what peak generation costs. A minority of tariffs decline instead, and the calculator accepts that too — it simply flags the order so you can double-check your rate sheet.
Delivery is charged on every kWh at one rate, so it behaves like an addition to whichever tier rate applies. That is why the marginal price is the top tier rate plus delivery, both grossed up by tax.
The fixed service charge is what breaks the intuition that halving your usage halves your bill. It is spread over however many kWh you use, so the all-in price falls as usage rises — up to the point where the higher tiers start pulling it back the other way. The result is a U-shaped curve: at very low usage the fixed charge dominates and the all-in price is high; at very high usage the top tier dominates and it is high again. The reference table below shows exactly where the minimum sits on the default tariff, and it is the reason a small apartment can pay more per unit than a large house on the same rate schedule.
Worked example: 900 kWh on a three-tier tariff
Take a household using 900 kWh in a month. The tariff has a $12.00 service charge, 500 kWh at $0.11, the next 500 kWh at $0.14, anything above at $0.17, delivery at $0.045 per kWh, and 6% tax on the whole bill.
- Fill the tiers. The first 500 kWh go in tier 1. The remaining 400 kWh go in tier 2. Nothing reaches tier 3.
- Supply. 500 × 0.11 = $55.00, plus 400 × 0.14 = $56.00. Supply is $111.00.
- Delivery. 900 × 0.045 = $40.50, charged on every kWh regardless of tier.
- Subtotal. 12.00 + 111.00 + 40.50 = $163.50.
- Tax. 163.50 × 0.06 = $9.81.
- Total. 163.50 + 9.81 = $173.31.
- All-in price. 173.31 ÷ 900 = $0.1926 per kWh, well above the 11-cent tier 1 rate the tariff advertises.
- Marginal price. The 901st kWh falls in tier 2, so it costs (0.14 + 0.045) × 1.06 = $0.1961.
Now cut usage by 10%, to 810 kWh. Supply becomes 500 × 0.11 + 310 × 0.14 = $98.40, delivery becomes $36.45, the subtotal is $146.85 and the bill is $155.66. The saving is $17.65 — 10.2% of the bill, slightly more than the 10% usage cut, because the 90 kWh you removed came off at the tier 2 marginal price rather than at your average price. On a tariff with a larger fixed charge and no tier structure, the same 10% cut would save less than 10%. The direction depends on which effect dominates, which is why the calculator computes both numbers rather than asserting a rule.
Reading your all-in price and comparing offers
Your all-in price is the only figure that makes two offers comparable. Retail suppliers in deregulated states advertise a supply rate, which excludes delivery, the service charge and tax — typically half to two-thirds of what you actually pay. When you compare a competitive offer against your incumbent, hold delivery and the service charge constant, change only the supply rates, and compare the resulting totals. The US Energy Information Administration publishes state-level average residential prices monthly, which is a useful sanity check on whether your all-in figure is in a normal range for where you live.
Watch the shape of your own consumption. A bill that jumps in July and August points at cooling, and cooling load tracks outdoor conditions closely — if you are trying to explain a summer spike, the heat index calculator will tell you how hard the humidity was working against your air conditioner. A bill that jumps in January in an all-electric home points at resistance heating, which is the most expensive way to make heat there is.
To find what is actually driving the number, work bottom-up rather than top-down. Take a device's nameplate wattage, multiply by hours of use, divide by 1,000 to get kWh, and price it at your marginal rate; the appliance energy cost calculator does that arithmetic. A 1,500 W space heater run eight hours a day for thirty days is 360 kWh, which at the 19.61-cent marginal price above is $70.60 a month from one appliance. That is the kind of figure that explains a bill; a 6 W phone charger is not.
Monthly bill and all-in price by usage on the default tariff
| Usage | Supply | Delivery | Tax | Total bill | All-in $/kWh |
|---|---|---|---|---|---|
| 250 kWh | $27.50 | $11.25 | $3.05 | $53.80 | $0.2152 |
| 500 kWh | $55.00 | $22.50 | $5.37 | $94.87 | $0.1897 |
| 750 kWh | $90.00 | $33.75 | $8.15 | $143.90 | $0.1919 |
| 1,000 kWh | $125.00 | $45.00 | $10.92 | $192.92 | $0.1929 |
| 1,500 kWh | $210.00 | $67.50 | $17.37 | $306.87 | $0.2046 |
| 2,000 kWh | $295.00 | $90.00 | $23.82 | $420.82 | $0.2104 |
The all-in price bottoms out near the top of tier 1, at $0.1897 around 500 kWh, and rises in both directions — the fixed charge dominates below it and the upper tiers dominate above it. Substitute your own rates in the calculator; the shape holds for any tariff with a fixed charge and rising blocks.
What this calculator does not capture
- Time-of-use pricing. If your rates change by hour, the tiers here cannot represent them. Run the calculator once per period with the kWh used in that period and the matching rate, then add the results.
- Seasonal tier sizes. Many utilities shrink the first block in summer, so the same usage lands further up the ladder. Check the rate sheet for the month you are estimating.
- Demand charges. Rare on residential accounts but common on small commercial ones, a demand charge bills your highest 15-minute draw, not your energy. It cannot be derived from kWh alone.
- Net metering and solar exports. Exported kWh are credited under rules that vary by state and often at a different price from what you buy at. Enter your net metered consumption if that is how your utility bills you.
- Budget billing. If you are on a levelised plan, the amount drafted each month is an average, not this bill. This calculator gives the underlying cost the true-up will eventually settle.
- Fixed dollar surcharges. Some bills carry flat riders in dollars rather than per kWh or as a percentage. Fold them into the service charge field.
- Meter multipliers. On a few older or transformer-rated meters, the register reading must be multiplied by a constant printed on the meter to get real kWh. Apply it before entering the figure.
Why utilities price this way, and what to do with the answer
Inclining-block pricing is a deliberate policy instrument, not an accident of billing systems. The cost of serving a customer has a large fixed component — the wires, the meter, the billing — and a variable component that gets more expensive as system load rises and more costly generation is dispatched. Charging a rising price by block keeps a baseline quantity affordable while pushing the true cost of heavy consumption onto the households creating it. The fixed service charge covers the connection itself, which is why utilities defend it and consumer advocates argue about it in rate cases: a large fixed charge weakens the incentive to conserve, because a smaller fraction of the bill responds to behaviour.
Once you have the number, the useful action is almost always to attack the largest load rather than the most numerous one. Heating, cooling and water heating dominate residential electricity use in most homes; lighting and electronics rarely do. If your bill spikes in winter and you are considering a generator or backup power for outages, the running cost is a separate calculation entirely — the generator fuel consumption calculator prices that in fuel rather than kWh.
If you share a household, settle how the bill is divided before it arrives. Splitting utilities evenly by headcount is the usual arrangement and is easier to defend than splitting by bedroom size, which the rent split by room size calculator reserves for rent. Water is the other metered bill worth rebuilding the same way, and the water and sewer bill calculator handles its block rates and fixed meter charges with the same structure used here.