Before I came to college, I knew that utilities provided my family services that we paid for. But I really didn’t understand the cost until I came to college. Even then, I didn’t really understand the utility system. I knew that I was metered and paid for my electric, water, and other usage, but I never really looked at the rate or the fixed costs. The bill came, I split it with the roommates, we paid it, and life went on.
I think this was because I was a renter. There are steps a renter can take to really limit the cost of utilities, but he or she doesn’t have the freedom (or perhaps the monetary incentive) to make large changes that save on the cost of utilities over several years (when the renter may be gone in months). Once I bought a home, however, I took an interest in how my electric, water, sewer, and other rates were calculated.
Today’s Financial Tip of the Week will explore the ins and outs of one utility: electricity.
Electricity
Electricity makes our modern life possible. I have lived without electricity on my camping trips in New Mexico and around Missouri, but I still had with me items that were made with electricity (plus I think I had a flashlight or two). A true attempt at living without electricity would mean living without anything made possible by electricity. As I look around my office and think about my home, I’m not sure that I have such things in my life (even the plants in my front yard were probably grown in a greenhouse with electric fans and electric-powered watering systems). Thankfully, electricity is abundant, almost ubiquitous, and has increased our standard of living a tremendous amount.
Measuring electricity
In our homes, electricity usage is usually measured in kilowatt hours (kWh). This measure is a combination of energy and time. Fortunately, the electric devices we use often list their wattage either on the box or on the device. With winter approaching, many families will heat some portions of their homes with electric heaters. These heaters are often rated in watts--a common type of heater is the 1000 watt heater. If left on for one hour, it will consume 1 kWh. Incandescent bulbs are also rated by wattage. A 100 watt bulb will consume .1 kWh per hour. So if a 100 watt bulb is used for 10 hours, it has used 1 kWh.
However, it is probably rare to leave a light on for 10 hours or have a 1000 watt heater on full blast all the time because electric heaters often have internal thermostats that regulate the temperature in the room. If you really want to know how much energy a device an appliance is using, a kWh measuring device can be used (example: Kill-A-Watt). These plug into the wall outlet (sometimes called the ‘mains’) and the appliance plugs into the measuring device. They measure both the wattage being consumed at that moment, but also the kWh of electricity that has been consumed since the device was plugged into the mains (YouTube has plenty of helpful videos).
Another excellent way to measure electricity is to read the electric meter for your house. In the past, these meters have not been easy to read with their odd dials (thankfully, there are plenty of tutorial YouTube videos), but many electric providers have switched to the meters with digital readouts. These meters only display the amount of electricity (in kWh) used, so the best way to determine your home’s energy usage is to make a notebook log and track the energy amount used at different times during the day or week. The difference between the electric meter’s displayed number shows the kilowatt hours consumed in the intervening time.
Rates
Once you have an idea of an appliance’s energy usage or your home’s total usage, you can apply the rate to determine how much the use of the appliance is costing you. Most electric bills have a fixed charge and a usage charge.
Fixed charge
Fixed charges often help pay to get the electricity to your home. This helps pay for the poles, electric transformers, and other infrastructure. This can vary a lot between providers. For example, the City of Columbia, Mo charges $6.95 per month for its fixed charge. Customers must pay this no matter how much energy they use. The Boone Electric Cooperative charges $19.70 for its fixed monthly charge, and AmerenUE charges $8.00 per month.
Usage charges
Usage charges are often split into summer and non-summer rates. Electricity usage is much higher in the summer because of the need for air conditioning. Electricity is also charged on a tier basis. Depending on your usage, you may be charged a higher or lower rate.
| Provider | Summer rates | Winter rates |
| First 750 kWh: 9.275 cents per kWh | First 750 kWh: 9.275 cents per kWh | |
| | Next 1,250 kWh: 12.637 cents per kWh | All remaining kWh: 10.764 cents per kWh |
| | All remaining kWh: 13.642 cents per kWh | |
| | | |
| First 600 kWh: 8.7cents per kWh | First 600 kWh: 8.7 cents per kWh | |
| | Next 1,400 kWh: 7.7 cents per kWh | Next 1,400 kWh: 7.7 cents per kWh |
| | All remaining kWh: 7.0 cents per kWh | All remaining kWh: 7.0 cents per kWh |
| | | |
| All kWh: 9.67 cents per kWh | First 750 kWh: 6.87 cents per kWh | |
| | | All remaining kWh: 4.61 cents per kWh |
Conclusion
One kWh may be standard, but the cost of that one kWh will vary with your electricity provider and the appliances in your home will also use different amounts of electricity. By taking some time to study the appliances in your home that use electricity and the cost of that electricity, you can be a better consumer when shopping for appliances, have a better basis for evaluating changes to your home, and feel confident that you know the true monetary cost of the electricity in your home.
Andrew Zumwalt, M.S.
Director of the MoTax Education Initiative
162 Stanley Hall
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