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Energy-Saving Opportunities

Electricity is a powerful form of energy that is essential to the operation of virtually every facility in the world. It is also an expensive form of energy that can represent a significant portion of a manufacturing facility’s cost of production.

5 Key Elements of Your Electricity Bill
5 Key Elements of Your Electricity Bill

This energy management primer is intended to introduce some electricity billing fundamentals, especially focusing on the two major aspects of the electricity bill, demand and energy.

This article also highlights key aspects of identifying energy-saving opportunities among major industrial processes and equipment.

Most electric utilities serve a designated geographic territory, largely without other competitors having access to their customers. As such, utility prices have often been set by local, state, or federal regulators, entities that review electric utility costs, revenues, investment decisions, fuel prices, and other factors to arrive at a target rate of return.

This approved rate of return, coupled with the utility’s cost structure, determine prices customers will pay.

These prices are established in electric utility tariffs, or rate schedules. Rate tariffs are usually established for different classes or sizes of customers. Common class types may include industrial, commercial, residential, municipal, and agricultural. Each customer class may have one or more rate schedules available, and it is common for the electric utility to allow a facility to choose the rate schedule within its class that offers the lowest price.

So, let’s go through each of 5 key elements of your electricity bill:

  1. Electricity metering
  2. Demand
  3. Energy consumption
  4. Load factor – Demand / Energy relationship
  5. Power factor

1. Electricity metering

Electric utilities meter both the real and reactive power consumption of a facility. The real power consumption, and its integral – energy, usually comprise the largest portion of the electric bill.

Reactive power requirements, usually expressed in power factor, can also be a significant cost.

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2. Demand

Real power consumption, typically expressed in kilowatts or megawatts, varies instantaneously over the course of a day as facility loads change. While instantaneous power fluctuations can be significant, electric utilities have found that averagepower consumption over a time interval of 15, 30, or 60 minutes is a better indicator of the “demand” on electrical distribution equipment.

Transformers, for example, can be selected based on average power requirements of the load. Short-duration fluctuations in load current may cause corresponding drops in load voltage, but these drops are within the normal operating tolerances of typical machines and within the design parameters of the transformer.

The demand rate, in $/kW, may also be referred to as a capacitycharge, since it has historically been related to the necessary construction of new generating stations, transmission lines, and other utility capital projects. Demand charges often represent 40% or more of an industrial customer’s monthly bill.

“Demand” is the average instantaneous power consumption over a set time interval, usually 15, 30, or 60 minutes.

“Demand” is the average instantaneous power consumption over a set time interval, usually 15, 30, or 60 minutes.
“Demand” is the average instantaneous power consumption over a set time interval, usually 15, 30, or 60 minutes.

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3. Energy consumption

The other major component of an electric bill is energy. The same metering equipment that measures power demand also records customer energy consumption. Energy consumption is reported in kilowatt-hours or megawatt-hours. Unlike power demand with its capacity relationship, customer energy consumption is sometimes related to fuel requirements in electric utility generating stations.

The cost per kilowatt-hour in a given electric utility rate structure, therefore, is often influenced by the mix of generating plant types in the utility system. Coal, fuel oil, natural gas, hydroelectric, and nuclear are typical fuel sources on which power generation is based.

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4. Load factor – Demand / Energy relationship

One useful parameter to calculate each month is the ratio of the average demand to the peak demand. This unit-less number is a useful parameter that tracks the effectiveness of demand management techniques. A load factor of 100% means that the facility operated at
the same demand the entire month, a so-called “flat” profile. This type of usage results in the lowest unit cost of electricity.

Few facilities operate at a load factor of 100%, and that is not likely to represent an economical goal for most facilities. But a facility can calculate its historical load factor, and seek to improve it by reducing usage at peak times, moving batch processes to times of lower demand, and so forth.

Load factor can be calculated from values reported on practically every electricity bill:

LF = kWh / (kW * days * 24)

Where LF is Load Factor, kWh is the total energy consumption for the billing period, kW is the peak demand set during the billing period, and days is the number of billing days in the month (typically 28-32). “24,” of course is the number of hours in a day.

Time-of-Use customers may prefer to track load factor only during on-peak time periods.

In that case, the kWh, kW, days, and hours/day in the formula are changed to reflect the parameters established only during the onpeak periods.

Typical load factor for an industrial facility depends to a great degree on the number of shifts the plant operates. One shift, five-day operations typical record a load factor of 20-30%, while two-shifts yield 40-50%, and three shift, 24/7 facilities may reach load factors of 70-90%.

Graphical comparison of facilities with dramatically different load factors
Graphical comparison of facilities with dramatically different load factors. The three shift facility produces an average demand that is nearly equal to its peak demand, while the average and peak
demand for the one shift facility is much less than one
Load Factor30%50%70%
Peak Demand, kW1142685489
Energy Usage, kWh250,000250,000250,000
Demand Cost$11,420$6,850$4,890
Energy Cost$10,000$10,000$10,000
Total Monthly Bill$21,420$16,850$14,890
Average Cost/kWh8.576.745.96
Demand Cost As Percent of Total53%41%33%

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5. Power factor

The relationship of real, reactive, and total power has been introduced previously, and described as the “power triangle”. For effective electricity cost reduction, it is important to understand how the customer’s electric utility recoups its costs associated with reactive power requirements of its system.

Many utilities include power factor billing provisions in rate schedules, either directly in the form of penalties, or indirectly in the form of real-power billing demand that is higher than the actual measured peak.

Even if a utility does not charge directly for poor power factor, there are at least three other reasons that a customer may find it economical to install equipment to improve power factor within its facility, thereby reducing the reactive power requirements of the utility.

Fixed capacitors are best suited for use on electrical systems with no voltage or current harmonics
Fixed capacitors are best suited for use on electrical systems with no voltage or current harmonics

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Typical energy auditing process

  • Evaluate the current rate schedule
  • Determine if other rate schedules are available
  • Complete the Facility Energy Profile
  • Assess no-cost/low-cost energy saving options
  • Complete feasibility analysis of energy management project options
  • Recommend Energy Action Plan

Example of Electricity bill

Electricity bill example
Electricity bill example

Reference: Electrical Energy Management – Bill Brown, P.E., Square D Engineering Services

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Edvard Csanyi

Electrical engineer, programmer and founder of EEP. Highly specialized for design of LV/MV switchgears and LV high power busbar trunking (<6300A) in power substations, commercial buildings and industry facilities. Professional in AutoCAD programming.


  1. Asmaa naiim
    Apr 08, 2020

    very precious and useful information ,it helps me a lot thank you !

  2. Parters Siampombwe
    Mar 09, 2016

    I always get helpful practical information on this site, please keep up the good work.

  3. Igweoba Okeke
    Nov 24, 2015

    nice article , will love to get more from you …
    Yours sincerely ,

  4. Jogendra Nagpal
    Oct 03, 2015

    Please let me know voltage level of distribution network in Houston US . What is the system to fed electricity in residential houses.

  5. Jogendra Nagpal
    Oct 03, 2015

    Good information for electrical engineers

  6. Jogendra Nagpal
    Oct 03, 2015

    Very very useful information I like most . Many many thanks for providing such information. Keep it up . Doing good job.

  7. simon
    Feb 03, 2015

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  8. sunil pawar
    Dec 16, 2014

    let me know about power saver (indian standard) which after installation will reduce watts

  9. Faisal
    Sep 14, 2014

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  10. Debraj Chatterjee
    Sep 01, 2014

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    • Nate C
      May 22, 2015

      Print page to PDF. Most microsoft office products have XPS pdf options. There are also extensions for chrome and firefox to save pages as PDF

  11. Juan
    Aug 29, 2014

    in the table the (Energy Usage, kWh) is 342

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