There are over 3,800 utility companies and utility cooperatives in the US, nearly all of them have their own unique way to bill for electricity. To help you understand how you are billed, and how to read your bill, this article will break down utility bills by the different types of rate plans offered by utilities and explain some common terms used on utility bills.

Terms you need to know to understand your utility bill


The first step in understanding your utility bill is to familiarize yourself with the terms used. Electrical usage is measured in kilowatt-hours (kWh). A kilowatt-hour is 1,000 watts of electricity that was consumed over the course of one hour. All utility companies bill for electricity by the kilowatt-hour.

Non-bypassable charges

Non-bypassable charges are fees that your utility company charges you for various costs that they incur. You can expect to pay these charges every month regardless of how much power your solar system generates. One example of a non-bypassable charge as of the date of this blog is the monthly fee that San Diego Gas and Electric charges for decommissioning the San Onofre Nuclear Power Plant.

Baseline allowance

Your baseline allowance (if applicable) is the amount of electricity your utility company estimates is needed to run an average household. It represents the amount of electricity that the electric company will charge you for at the lowest (base) rate of your plan.

High usage charge

Applicable to California utilities, a high usage charge is a very high rate for electricity that is charged to customers who use more than 400% of their homes’ baseline allowance.

Demand charges

Demand charges are a way of determining how much a customer will be billed for electricity based on that customer’s highest electrical usage for that month. The higher your highest usage is, the higher the rate per kilowatt-hour that you will be charged for electricity.

True-up bill

Utilities that provide net metering policies to solar owners may pay solar owners for any bill credits that solar owners have accumulated at the end of the year. Should that be the case, the solar owner will receive a true-up bill at the end of the year that will show how much the bill credits were worth.

The different ways you can be billed for electricity

There are many different ways you can be billed for electricity. Some plans are very simple, such as fixed-rate plans. Other plans such as Time-of-Use (TOU) plans can be very complicated.

Flat rate billing

With flat-rate billing, you are charged the same amount per kilowatt-hour regardless of how much power you use. It’s very easy to understand how flat-rate billing works. You simply multiply the rate you are charged per kilowatt-hour times the number of kilowatt-hours of electricity you consumed and the answer is how much you were charged that month for electricity.

Variable-rate billing

With a variable-rate plan, the price you pay for electricity may fluctuate from month-to-month due to fluctuations in market price. Under this plan, users are likely to pay higher prices in the summer when demand is high, and lower prices in months when demand is low.

Demand charge billing

Demand charge billing determines how much you will be charged for electricity based on what your highest 15-minute period of electrical usage was. With this type of billing, you will save money if you spread your electrical usage out, rather than running a bunch of appliances at the same time. 

Indexed-rate billing

On an indexed rate plan, the rate you pay for electricity is indexed to the price your utility pays for some underlying variable, such as the price of natural gas. These plans can behave like variable-rate plans, where the price paid for power fluctuates; or they can behave like fixed-rate plans, where the rate paid doesn’t change.

Tiered-rate billing

If you are charged for electricity using tiered-rate billing, then the amount you pay per kilowatt-hour rises depending on how much power you use. The utility company will give you a baseline allowance. That is the amount of power you can consume and pay the lowest tiered rate for. If you use more power than the baseline, that additional power will be charged at a higher rate.

As an example, here is a sample residential tiered plan rate chart for summer 2020 for San Diego Gas & Electric:

  • Up to 130% of baseline = $0.14194 per kWh
  • 131% up to 400% of baseline = $0.21995 per kWh
  • Above 400% of baseline = $0.66 per kWh

Your baseline allowance will be shown on your utility bill. The bill will also show you how much you paid in each tier.

Time-of-Use (TOU) billing

With TOU billing, the rate you pay per kilowatt-hour varies by the time of day that you use electricity. Usually, utilities charge their peak rates in the evening when most people are home and using electricity. TOU billing can reduce the amount you save by going solar. Understanding TOU rates helps to explain why home batteries make sense for some customers.  The energy stored on the batteries can power the home during peak rate hours and the batteries can be recharged the next day using the home’s solar system. Some utility companies offer lower TOU rates if you own an electric car or plug-in hybrid. 

TOU plans can also be tiered plans. When you are served with a tiered TOU plan, when you use power and how much power you use will both affect the price you pay per kilowatt-hour. 

Here is an example of tiered TOU rates:

  • Peak TOU rates are from 4 PM to 9 PM. 
  • Off-peak rates are from 6 AM to 4 PM except for March and April
  • Off-peak rates are also from 9 PM to 12 AM
  • Super off-peak rates are charged from 10 AM to 2 PM in March and April
  • Super off-peak rates are charged from 12 AM to 6 AM
  • If you use more than 130% of the baseline allowance, the rates you pay increase

Here’s how on-and-off peak rates look below 130% of baseline

  • Super off-peak = 26 cents per kWh
  • Off-peak = 28 cents per kWh
  • On peak = 29 cents per kWh

Here’s what happens to those rates if you use more than 130% of the baseline allowance:

  • Super off-peak = 34 cents per kWh
  • Off-peak = 35 cents per kWh
  • On-peak = 36 cents per kWh

As you can see, TOU billing with tiered rates gets complicated quickly! The good thing about TOU billing in California is that you won’t be subject to high usage charges even if you use more than your baseline allowance.

What to look for when reading your utility bill

The first step is to find out which way you are being billed for power. Then look at your electrical usage. Does your plan give you the best price? It’s easy to calculate how much you’d pay on a fixed-rate plan. But other plans such as Time-of-Use plans are going to be more complicated to calculate how much you would pay.

Next, if your plan includes a baseline allowance, compare that to how much power your home uses. You may be able to save money by going solar if you exceed your baseline allowance regularly. Going solar can also help you avoid incurring high usage charges if your utility company charges them. Your baseline allowance may change between winter and summer months, so be sure to check and see if your bill shows that you are on a summer or winter schedule.

A utility bill may also show your annual average usage. If that’s the case, you can use that information to determine if a different billing plan might save you some money. 

For Time-of-Use (TOU) plans

If you are on a TOU plan, then take a close look at how much power you use during peak rate hours. You can save money by shifting as much of your power usage to off-peak hours as possible. If you have home solar, and you can’t shift your power usage away from peak-hours, you may want to consider installing home batteries. You can estimate your savings by comparing what you are paying during peak hours with the monthly cost to finance home batteries that have enough capacity to power your home during peak-rate hours.

Another way you may be able to save money on TOU plans is to buy an EV or plugin hybrid. Check with your utility company to see if they offer TOU-EV plans. Those offer savings on the rates you pay to offset the additional amount of power you will use charging your car.

Freedom Forever can help you get your utility bill under control

Going solar can save you money on your electric bill if you manage your power usage wisely and pick the right billing plan. If you are on a TOU plan, you may also be able to save money by installing home batteries. Freedom Forever’s family of independent authorized dealers can help you find out if solar and/or home batteries make sense for you. Best of all, you can go solar with confidence thanks to our 25-year performance guarantee.

Take control of your energy future. Call us at 800-685-1850 or click below to get started.