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# How does your energy bill get worked out?

Mark Bristow

The cost of electricity can directly affect our household budgets. But how exactly is the amount you fork over to a power company each quarter determined? And what can you do to cut some of your costs?

## The basic calculation

While electricity bills can appear very complex, they ultimately come down to a relatively straightforward formula:

Bill (\$) = energy use (kWh) x energy price (\$/kWh)

So, the more energy you use over a billing period, and the higher your energy price, the more you may be charged on each energy bill.

## What makes up the energy price?

Your energy price, or tariff, is made up of both fixed and variable charges.

The fixed charge, also known as the supply charge or daily service charge, covers the cost of delivering electricity to your property. This charge is set by the area’s energy distributor, which owns and maintains the cables, power poles, and power plants that generate electricity.

The variable charge, also known as the usage charge, is based on how much power you’ve used during the billing period, measured in kilowatt hours. This is set by the energy retailer you have signed up with – in some cases this is also the energy distributor, but the retailer is often a separate organisation that buys electricity from distributors at wholesale rates and on-sells this power to customers, while also looking after billing, customer service and support.

Your energy tariff may also be set at a single rate, or use time of use pricing. A single rate should mean your electricity costs remain consistent. Time of use pricing may vary based on whether you use electricity during peak, off peak, or shoulder periods. For example, you may pay more for electricity used in daylight hours than at night or in the evening.

## What else can affect your energy bill?

• Some energy retailers may offer discounts to customers as part of their packages, which could help to reduce your bills.
• If your home has solar panels, you may receive solar feed-in tariffs for any unused electricity that your solar system sends back into the grid.
• Government concessions and rebates may apply for some households, which can help reduce power bills.
• Fees and taxes may also be charged by the energy retailer or supplier, or by the state government, which could raise the cost of your bill.

## Why is my power bill so high?

### Using more power

Are you running more air conditioners during summer, or heaters during winter?

### Changed billing periods

While most electricity bills are calculated quarterly, you could have a smaller bill if you move into or out of a property partway through a quarter. If you recently moved and your current bill is much higher than your last one, you may want to confirm if the last bill was for a shorter period.

If your power company can’t accurately calculate how much electricity you’ve used, such as if they can’t access your property for a meter reading, they may estimate your bill using an average amount for your size household. If future meter readings show that this estimate was inaccurate, this will be reflected in future bills – you could be charged more if the estimate was too low, or receive a credit if the estimate was too high.

## How to lower your power bill

Try to limit your use of energy-guzzling appliances where possible. Disconnect so-called ‘vampire appliances’ that use power in standby mode even when inactive. Or switch to energy-efficient models – you may be surprised by the difference a few extra energy stars can make.

If you’re on a time of use tariff, power may cost less at certain times. Consider changing some of your household habits and routines accordingly, such as running your washing machine at night.

### Invest in renewables

Adding solar panels and a solar battery to your home could help to reduce your reliance on power from the grid, lowering your future bills. In some cases you may also be able to get some money back from the energy companies by providing excess solar power to the grid.

### Switch energy plans or retailers

Depending on when you signed up with your energy retailer, you may not be on their cheapest plan, or the plan that best suits your household needs. You can also look further afield and compare energy plans from other retailers. Compare the available options carefully before you switch, and make sure the new provider offers more than just a cheap price – you may also want to be confident that they can provide good customer service and support when needed.

This article was reviewed by Research Director Sally Tindall before it was published as part of RateCity's Fact Check process.