Introduction
The cost of energy includes fixed and variable charges. The fixed charges are set monthly charges, while the variable charges depend on consumption and/or demand. Energy-saving measures reduce only the variable charges. However, fixed charges are usually nominal compared to the variable charges so, to simplify the process, fixed charges are not deducted from the total charge when calculating unit cost ($/kWh, $/therm, $/Btu, etc.).
Unit Cost of Electricity
The figure below is an example of an electric bill.
Example of an electric bill
This example electric bill shows fixed and variable charges as follows:
- "Basic Charge" is a fixed charge.
- "System Usage," "Off-Peak Usage," "On-Peak Usage" are variable charges that depend on consumption (kWh). They usually make up most of the cost, so it is common to use them to calculate the average cost. All the items listed under "Adjustments" are variable adjustments that also depend on consumption (kWh).
- "Off-Peak Demand" and "On-Peak Demand" are variable charges that depend on demand (kW).
- Taxes are generally a variable cost, and depend on a combination of the above factors. The bill below does not include a tax charge because it represents a low-income facility exempted from taxes.
The total demand and basic charges are nominal compared to consumption (kWh) charges. So, for simplicity, we can calculate unit costs for consumption without deducting the basic or demand charges.
To calculate the approximate, average, unit cost of electricity:
- Take the total amount due for electric consumption (A). Make sure you deduct the adjustments and include taxes.
- Divide this amount by the total electric consumption in kWh (B).
In our example, A = $43,212.89 and B = 655,200 kWh so the approximate unit cost of electricity, is $0.066/kWh:
| Amount Due | $43,212.89 | All charges less adjustment |
| Total Consumption (divide by) | 655,200 | kWh |
| Cost of Electricity | $0.066 | per kWh |
Note: If your utility rate is less than $0.05 per kWh or more than $0.15 per kWh, you may be looking at the wrong numbers. Check again!
Unit Cost of Gas
The figure below is an example of typical charges on a gas bill.
Example of charges on a gas bill
To calculate approximate, average, unit cost of gas.
- Take the total amount due for gas consumption (C). Make sure you deduct the adjustments and include taxes.
- Divide this amount by the total gas consumption in therms (D).
In our example, C = $389.75 and D = 422 therms, so the approximate unit cost of gas, is $0.92/therm:
>td >Cost of Gas
| Amount Due | $389.75 | Total regulated charges |
| Total Consumption (divide by) | 422 | |
| $0.92 | /therm |
Note: If the gas rate you calculate is not between $0.80 and $1.70 per therm, you may be looking at the wrong numbers. Check again!