The Cost of Electricity: How Utility Companies Are Charging Consumers

The Cost of Electricity: How Utility Companies Are Charging Consumers

Before we can understand how much electricity costs, we have to know how it’s measured.

What exactly is a kilowatt hour?

When you buy gas they charge you by the gallon. When you buy electricity they charge you by the kilowatt-hour (kWh). When you use 1000 watts for 1 hour, that’s a kilowatt-hour.

To get kilowatt-hours, take the wattage of the device, multiply by the number of hours you use it, and divide by 1000.  (Dividing by 1000 changes it from watt-hours to kilowatt-hours.)

Here’s the formula to figure the cost of running a device:

wattage   x   hours used  ÷  1000  x  price per kWh  =   cost of electricity

For example, let’s say you leave a 100-watt bulb running continuously (730 hours a month), and you’re paying 15¢/kWh.  Your cost to run the bulb all month is 100 x 730 ÷ 1000 x 15¢ = $10.95.

If your device doesn’t list wattage, but it does list amps, then just multiply the amps times the voltage to get the watts. For example:

2.5 amps   x   120 volts   =   300 watts

You can’t always trust the wattage printed on the device because many devices don’t use the full listed wattage all the time.  For example, the compressor in a refrigerator doesn’t run constantly, only sometimes, so you can’t go by the listed wattage for a fridge.  The most accurate way to find the average wattage of a device is to measure it with a watt-hour meter.

Go get your electricity bill and see how many kilowatt hours you used last month.  Also, find how much you’re paying per kilowatt hour.

Watts vs. watt-hours

Many people get confused about the difference between watts and watt-hours.  Here’s the difference:

  • ·Watts = the rate of use at this instant.
  • ·Watt-hours = the total energy used over time.

Here’s a frequently asked question:

“If a device uses 100 watts, what period of time is that for?”

It’s not for any period of time because watts are a rate at that instant. The same goes for a question like:

“The speedometer in my car says I’m going 35 miles an hour. What period of time is that for?” 

It’s not for any period of time. You’re going 35 miles an hour at that instant.

The difference is:

  • ·We use watts to see how hungry a device is for power.  (e.g., the 100-watt bulb is twice as hungry as a 50-watt bulb.)
  • ·We use watt-hours to see how much electricity we actually used over a period of time.

So, just multiply the watts times the hours used to get the watt-hours. (Then divide by 1000 to get the kilowatt-hours, which is how your utility charges you.) Example: 100-watt bulb x 2 hours ÷ 1000 = 0.2 kWh.


Provided by the Dept. of Energy

The average U.S. household used 920 kWh a month in 2008.

The U.S. as a whole used nearly 4 trillion kWh in 2009. About 37% was residential use.

Florida was 46th in the nation below North Carolina with regards to energy expenditure per person in 2009. Each Floridian spent $2,947.22 on energy.

Despite disgruntled American complaints, the U.S. has some of the lowest electricity rates in the world (along with tax rates).

The cost of electricity depends on where you live, how much you use, and when you use it.

So how much does electricity cost?

The electric company measures how much electricity you use in kilowatt-hours, abbreviated kWh. Your bill might have multiple charges per kWh (e.g., this one has six different per-kWh charges) and you have to add them all up to get the total cost per kWh.

Electricity rates vary widely.  We’ve found rates ranging from 12-50¢ per kWh from the same provider.  The only way to know what you’re actually paying is to check your bill carefully.  You can’t find out your own kWh rate by reading this web page, or any other.

So the “average” rate of electricity is all but useless for most purposes.  Therefore, on this site, we generally use a sample rate of 15¢ per kWh.  This isn’t a “typical” rate since there’s no such thing as typical when it comes to electricity rates.  And it’s certainly not average.  It’s just a reasonable example.  Your own rate could be dramatically higher or lower than this.

The average price of residential electricity was 12¢/kWh in the U.S. in August 2011 and ranged from 8.2¢ in Washington to 29¢ in Hawaii. (From the DoE, which also has historical rates)  But average rates are misleading because most utility rates are tiered, meaning that excessive use is billed at a higher rate.  This is important because your savings are also figured for the highest tier you’re in.  For example, let’s say you pay 10¢/kWh for the first 500 kWh, and then 15¢/kWh for use above that.  If you normally use 900 kWh a month, then every kWh you save reduces your bill by 15¢.  (Well, once you get your use below 500 kWh, then your savings will be 10¢ kWh, but you get the point.)  When using my Savings Calculator, you should generally choose the highest tier you’re currently paying.

Because savings happen at the highest-billed tier, those writing about saving electricity generally should not use the average rate, since the savings rate will usually be higher.  That’s why we use a sample rate 15¢, instead of the average rate of 12¢.

California has a complicated way of figuring its tiers.  First, you have to find your “baseline quantity” (different for every area, and for winter vs. summer) and then multiply that by the number of days in the billing cycle.  For example, an all-electric (no gas) San Francisco household has baseline quantities of 11.1 for summer and 20.2 for winter.  In a 31-day month, the baseline is 11.1

x 31 = 344 kWh for summer and 20.2 x 31 =626 kWh for winter.  From there the tiers (and pricing from PG&E) are as follows:

Average price of electricity in 2003 (¢)

  • ·12¢ / kWh – up to the baseline
  • ·14¢ / kWh – 101 to 130% of baseline
  • ·29¢ / kWh – 131 to 200% of baseline
  • ·40¢ / kWh – >200% of baseline

(Yes, I know that PG&E has petitioned to change to a 3-tier system…in the future.  Feel free to let me know when that actually goes into effect.)

Above is a map showing average electric rates by state for 2003, though as I explained above, looking at average rates is all but useless.  For energy-saving purposes, what you really want to know is the price you’re paying at the highest tier you’re in, from your own provider.  By the way, the DOE no longer publishes a nice large, readable map like this (at least not that I could find).  They do publish a barely legible version, and another site uses their data to publish a large version.  The DOE does have a page with the raw data by state if you hunt for Table 5.6.A.

Should I switch electric providers to lower my power bill?

Until recently, no one had the choice of where they got their electricity from.  There was only one company (or co-op, or public utility), and that was it.  But recently, some states have allowed new providers to come in and compete, so depending on where you live, you might have the option to pick your provider now.  The idea is that when there’s competition, it results in lower prices for the consumer.

The reality is that due to the unique nature of electricity as a product, this competition hasn’t resulted in very much potential savings so far, and isn’t likely to do so in the future.  In fact, in some cases, electricity prices went up after deregulation. (WSJ, 2008)  And whatever the potential savings from switching providers, in most cases it pales in comparison to the money you can save by washing in cold instead of hot, dialing up the thermostat in the summer, or using CFL light bulbs.  You almost always get greater savings from conservation, so please do that first before you look at changing providers.  Only after you’ve made some progress at reducing your consumption is it time to look for another provider, which you can do at

Demand Charges

Some utility companies impose an additional charge based on the maximum amount of electricity you draw at any one time. This is called a demand charge. The chart at right from Wisconsin Electric illustrates this concept. The shaded area is how much electricity you used, and you know you get charged for that. But the black bar on top is the demand, how much energy you “demanded” at any given point throughout the day. If your utility company has a demand charge (ask them), then you can save money by spreading out your electrical use throughout the day. Running appliances one after the other rather than at the same time would reduce your demand. And better yet, running them when you’re not using much electricity for other purposes (such as at night when the air conditioner is off) will reduce your demand even more.

“Doesn’t my utility company want me to use more electricity so they can make more money?”

Possibility of cheaper power in the evenings

Some utilities have cheaper rates in the evenings. (Check with them to find out.) That’s because it’s harder for them to reach peak demand during the day when everyone’s running the AC.  So they might charge less in the evenings to try to get you to move some of your consumption (like laundry machines) outside of those daytime hours.  And even if your utility doesn’t have cheaper rates at night, if your utility has a demand charge (see above), it could still pay to shift your laundry to the evenings, because running laundry + air conditioning at the same time results in a higher demand.

Most utilities in the U.S. are owned by their members (co-ops) or by the government. In those cases there aren’t any shareholders or owners demanding higher profits.  And even when a utility is a traditional business, they’re often regulated and can’t just promote electric consumption willy-nilly.  In any event, whether you trust or distrust your utility, you can still save energy by using the strategies listed on this website.

Cost Comparison Between More Efficient LEDs and Outdated Incandescent Light Bulbs



Light bulb projected lifespan

50,000 hours

1,200 hours

Watts per bulb (equiv. 60 watts)



Cost per bulb



KWh of electricity used over
50,000 hours



Cost of electricity (@ 0.10per KWh)



Bulbs needed for 50k hours of use



Equivalent 50k hours bulb expense



Total cost for 50k hours



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