Ask An Advisor: Energy Bill Components

Video Transcript

Hi! I’m John and I’m the CEO and Founder here at Nania Energy Advisors. And today’s subject is your energy bill, whether it be gas or electric.

What we’re going to do is we’re going to break out the 4 components that make up each one of those bills. And we’re going to do it with the aid of some of our furry friends here at Dogtopia.

Energy Bill Components

Energy

The largest part of your utility bill by far and away is the actual energy cost. It can represent up to 70-80% of your total charges. In gas, it’s billed as therms or MMBtus, and in electric it’s billed as killowatt-hours.

Besides being the biggest part of your bill, it’s also the part that’s the most volatile, as our furry friend Riley is going to aptly demonstrate. What I mean by “volatile” is it’s subject to market conditions. So if you default to a rate and do nothing about that energy price, you’ll see whatever the hourly rate is on electric or the monthly rate is on natural gas from either the utility or your supplier.

The other thing you can do is try to control those costs. By controlling them, usually that means engaging in a fixed price product. By doing so, at least you’ll know what your costs are, and if you do so correctly you’ll be able to save some money compared to what you would have paid on a floating rate. You can do a fixed rate for as far out as 3 or 4 years.

The other way you can save money on this energy component besides managing the rate is by managing your consumption. So the less you use, the lower your costs. So it’s a formula: your rate times your usage determines your total cost for energy.

Market Charges

The second largest part of your energy bill is what we call market charges. We’ve got our friend Eevee here who’s a prop for us today. Market charges are something that move, but not too much. And generally, you know what you can expect from them.

In natural gas, they’re a line item that’s labeled “Demand Charges,” and in electric there’s several line items. They start with capacity, transmission, ancillaries, losses, and there may be some other miscellaneous ones too. These are all market-driven, but regulated, so we know in advance generally what they’re going to be but that they also move.

These charges exist because they ensure that there’s reliability of service. The utilities are responsible for making sure that everybody has all the energy they need at any given time. Those charges make sure that resources are allocated properly so that that can occur. You don’t ever have to worry about physical restrictions on how much you need or curtailments of any kind.

Delivery Charges

The third part of any utility bill, which also is a significant cost, is what we call delivery charges. This is Candy — she kind of demonstrates what a utility charge is all about. They’re not the biggest portion of your bill, but they’re still important. But they don’t move much. They are completely regulated.

These charges are what the utilities use to recoup their costs for the infrastructure that they have leading up into your building. In natural gas, think about the pipes and the meters. And in electric, think about the transformers, the lines, and the meters.

These are heavily regulated by the local commerce commission, and they don’t change much. They’re very predictable, and unfortunately you don’t have much choice in those matters. There’s just not much movement there.

Taxes

The fourth and last component of any utility bill is your taxes. This is our friend Chance. He doesn’t move much, he’s very predictable, and there’s not much we can do about him.

These are charges that the municipal and state collect through your utility bill, billed by your utility company. Public institutions like schools and park districts and libraries pay them the same as private entities.

Just to note: there are occasionally carve-outs with exemptions for taxes for specific industries sometimes in a state. So it’s always worth at least having your energy advisor take a peek at them just to ensure you’re not missing what could be some real found opportunities in the form of tax deductions that you should be taking.

Closing

Thanks for watching today’s video! And, as always, if you’ve got questions about what’s going on with your utility charges, the best source is your local agent, broker, or consultant who have help guide you and explain it a little more thoroughly.

So, from all of us today, we want to say goodbye and thanks for watching our video!

 

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