An energy charge (also called a usage charge or a variable charge) collects for the amount of electricity or gas used by a customer. Customer bills often include multiple energy charges – one based on distribution costs and one based on supply (commodity) costs. In theory an energy charge collects costs associated with the amount of electricity or gas used by customers. In practice, however, energy charges are often used to also collect fixed costs not included in other charges. True variable costs include variable operating and maintenance costs associated with the distribution system plus the cost of gas supply, power generation, and purchased power. But energy costs may also include the fixed costs associated with distribution and transmission system infrastructure and power plants owned by utilities.
Various rate structures can be used to collect energy costs. These include:
- Flat: The customer pays the same amount per kWh or therm regardless of when or how much energy is used.
Declining block: A structure where the customer pays a different rate for different tiers of usage, with block prices declining as the customer uses more.
Inverted block: A structure where the customer pays a different rate for different tiers of usage, with block prices increasing as the customer uses more
Seasonal: The rate is different for different seasons of the year
Critical peak pricing (CPP): On a specific number of days per year the rate is raised substantially during peak hours when the utility calls a CPP event.
Real-time pricing (RTP): The price varies daily or hourly based on wholesale market fluctuations.
Under any of the above structures, rates may also vary by firmness of service and, in the case of electric service, by voltage level. For example, a firm electric customer might pay 8 ¢/kWh while interruptible customers pay 6 ¢/kWh. Similarly, voltage-based rates for industrial customers may vary. For example: the transmission voltage rate is 4¢/kWh; the primary voltage rate is 7¢/kWh; and the secondary voltage rate is10¢/kWh.