On your electricity bill, you will typically be charged for two different things - an “energy charge” and an “average rate”. The energy charge is based on the total amount of electricity you've consumed during a specific period, while the average rate is based on the overall cost of generating and delivering the electricity consumed.
In layman's terms, the “energy charge” represents the cost of the electricity itself, calculated based on the usage or number of kilowatt-hours (kWh) consumed during the billing period. This cost is usually charged per unit (kWh). This rate can be fixed or locked in, or the rate can be variable, which could increase without warning. Avoid variable plans if possible!!!
On the other hand, the “average rate” is a calculation of all the costs associated with generating, delivering, and distributing electricity to customers. This includes, for example, the costs of fuel, the cost of maintaining and operating power plants and transmission lines, and other operating and administrative costs. Plus, there are taxes that are collected for the city, state, or county you live in. These overall costs are divided by the total amount of electricity consumed to arrive at an average rate.
In essence, the “energy charge” represents the cost of the electricity itself, while the “average rate” represents the overall cost of generating the electricity and delivering it to you. These two charges are added together to determine the total cost of your electricity bill.
The only thing consumers can change in deregulated areas of electricity is the “Energy Charge”. Consumers can shop the market to find out who is giving them the best deal and lock down the electricity rate for a specific term.
BUYER NOTE: Always look at the EFL or Electricity Facts Label to see what the actual energy charge will be before picking a plan.
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