Rate Structures

Electricity rate structures determine how utilities convert the cost of building and operating the electric grid into the prices customers pay for electricity service. Rather than charging a single price for electricity, utilities divide costs into several pricing components such as customer charges, demand charges, and energy charges. These rate structures are defined within utility tariffs and determine how electricity usage is measured, how peak demand is billed, and how costs are allocated across different customer classes. Understanding electricity rate structures helps explain why commercial electricity bills include multiple charges and why two businesses using similar amounts of electricity may pay very different prices.