Understanding the Fundamentals of Your Energy Bill

Power bills can be confusing, and even intimidating at times.

Most people pay them without ever taking notice of what fees and charges are applied (does this sound familiar?).  They are not designed to be straight forward and understandable like a kitchen recipe, but that doesn’t mean they are impossible to interpret.

The Alberta energy market is deregulated, which means private companies control the supply, and distribution of electricity (such as Epcor, Enmax, Fortis etc.).  There are plenty of advantages and disadvantages to this set-up, but that is not the intention of this post.  

Here, we will simply examine the standard power bill and outline which fees mean what and how solar energy can reduce your power bill dramatically.

Alberta Electricity Grid

There are two main entities in the Alberta energy market: energy retailers and wire service providers (WSPs).  

Energy retailers buy and sell energy from producers to the homeowner/end user. There are dozens of energy retailers to choose from in Alberta’s deregulated market.   These companies will charge you for your energy and an administration fee to handle their internal costs.  On your energy bill you will see 2 separate categories, Energy Charges and Delivery Charges.  

Your energy charges and admin charges are directly tied to your energy retailer.  In the image below, the energy charges are highlighted in green.  

The WSP is responsible for transmitting and distributing energy to/from your home and throughout the grid.  Selecting a WSP is primarily based on your location in Alberta.

The transmission charge, distribution charge, balancing pool allocation, rate rider, and local access fee are directly tied to the wire service provider. The delivery charges are highlighted in blue in the image below.  

The difference of the two is fundamental to understanding how the Alberta electricity grid operates.  

The electric retailer in this example is ENMAX Energy Corporation, and the WSP is EPCOR.

Charges and Fees on Your Power Bill

As most people that pay for power know, the fees make up a sizeable portion of a power bill with the actual energy charge accounting for less than half of the total amount due.  This is typical across Alberta, so don’t feel like you are the getting the short end of the stick.  

Let’s examine the major components.  Bullets 1 and 2 relate to your energy retailer, and bullets 3 and 4 relate to your WSP.  The orange numbers on the image correspond the ensuing points:

1.      Energy Charge – This is the fee for the energy itself, measured in kWh and charged to you per kWh of use ($/kWh).  Solar power will directly reduce this charge.

2.      Administration Charge – This fee covers internal costs for the energy retailer.  This is typically charged in $/day.

3.      Distribution Charge – This charge has 2components, a fixed and a variable charge. The fixed charge is typically billed in $/day, the variable charge is tied to your usage, typically billed n $/kWh. Your power bill will likely not provide a breakdown of the fixed vs variable portion of you distribution charge but it is easy to look up the breakdowns for different WSPs.  Solar energy will directly reduce the variable portion of this charge.

4.      Transmission Charge – Transmission charge is based off your usage as well and billed in $/kWh.  Solar energy will directly reduce this charge.

These 4 components will make up 90% to 97%of the average residential power bill.  

The remaining charges are not as crucial but let’s touch on them anyway:

1.      Local Access Fee – This is billed in$/kWh or $/day (and perhaps a combination of both) depending on where you live. This fee usually hovers around $2.50/month or about $0.08/day or $0.008/kWh.

2.      Balancing Pool Allocation – This fee/credit is due to profits made by or deficits incurred by the Balancing Pool selling electricity to the market.  This is usually listed with CR next to it, meaning it is a credit on your account (i.e they pay you!).  Like many good things, this consistent credit may have a limited life due to profits from the balancing pool decreasing.  

3.      Rate Rider – Simply put, the rate rider is a one-off charge assessed by the WSP. There are many different classes of rate rider which are not often fully disclosed on your power bill.  This fee may be assessed if the Alberta Utility Commission (AUC) or the Alberta Electric Systems Operator (AESO) adjusts their charges. This is often a credit (CR) if the upstream fees happen to work in favour of the consumer.

4.      GST – Good ol’ goods and services tax.

All of these charges and fees will make up100% of one’s power bill.  A sample of their breakdown percentages can be seen below. This breakdown is taken from the previous example with ENMAX being the retailers, and EPCOR being the WSP.

Every month will be slightly different, but similar trends will appear throughout the year and across different retailers and WSPs.

Energy and Fee Trends

It is no big surprise that the general trend of fees and charges over the past 20+ years is upward.  The following two graphs compiled by Howell Mayhew Engineering, show how the separate charges have progressed over time.  

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The top graph shows how the trend of electrical energy (blue) over time.  The trend is further separated into energy related charges from the retailer(green) and the WSP (red).  In recent years, the retailer energy charges have seen a declining trend but the WSP energy delivery charges have steadily risen to create a minor countering effect.    Overall, the delivered price of electrical energy is seeing an upward trend, although we are currently experiencing extremely low energy prices.    

The bottom graph is less subjective in terms of how it can be interpreted.  The charges for grid connection and operation and administration related charges are steadily increasing.  

It does not take an economics professor to imagine where prices will go in the future.  This simple observation is confirmed by estimations from the AESO.  

But this apparent consumer ‘disadvantage’ of high energy and transmission prices can easily be turned into an advantage with the installation of solar panels.  

Solar power protects you from volatility in the energy market by locking you into a rate for the next 25+ years.  The best part is, this rate is more favourable than the long-term cost of grid-tied electricity.

By hedging against future price escalations, you will welcome the rise in electricity prices.  Under the microgeneration regulation, you receive a credit for exported energy equal to your retail energy rate.

So if the price of energy goes up to$0.10/kWh (like it already is in many provinces), you may now receive a higher rate of return for your investment.  A higher electrical energy price will directly correlate to a lower payback period for a solar panel installation.  

But the energy charge is only ~1/3 of the total bill.  Does that mean solar panels will only reduce my energy bill by 1/3?

No.  

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How Solar Energy Affects Your Power Bill

Solar panels will significantly reduce your monthly power bill since many of the fees are based off how much energy you use(assessed in $/kWh).  

If you import less from the grid because you generate your own solar energy, then many of your fees will decrease or possibly disappear entirely.  Obviously solar panels can’t directly affect all the fees, but solar power does fantastic job of saving you money.

Generating 100% of your energy from solar panels in Edmonton, Calgary (or anywhere in Canada) is quite attainable. If you do, then your transmission charge, and much of your distribution charge may disappear entirely.  How much it decreases depends on how much energy you still import from the grid, such as at night or during the winter, when solar panels may not provide enough energy to fully cover your needs.

If you like seeing those CR’s (credits) next to your bill, then you’ll love what happens after a home solar power installation.   Below is an example of a real power bill following a solar energy installation in Alberta from Kuby Renewable Energy.  This client longer pays for electricity or any of the other painful fees.  

The key items to note are highlighted orange.  As you can see, the transmission charge is pretty close to $0.00 since very little energy was imported this month.  The distribution charge you see almost entirely due to the fixed rate which is applied per day.  As mentioned earlier, the distribution charge will never scale to $0.00 due to the fixed daily charge.  

The key difference between your power bill with and without solar is the Microgeneration Credit.  This credit related to how much energy is holdback to the grid for the given period (on this particular bill, the microgeneration credit is listed for the previous 3.5 months).

The graph on the right side of the top image clearly shows the client’s energy profile following the solar power installation.  Nearly 100% of the required energy is generated from the solar panels.  For this particular billing period the client’s average cost of energy was$-3.52/day.  

Yes, that is negative $3.52 per day.

The most pleasing metric of the entire bill is highlighted in the second image.  Since the client generated more than he consumed, and developed a credit, his total amount due is $-87.56.  

Yes, that is another negative amount.

This client does not have to pay a single penny this period, or likely all year. The credit will continue to roll over providing a continuous energy cushion should he ever consume more energy in the winter months or buy a hot tub, air conditioner, electric vehicle etc...

Wish your power bill looked like this?  It’s quite easy.  

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Conclusion

We hope this takes some of the confusion out of interpreting your power bill. There are lots of fees, but they all serve their purpose in ensuring you have electricity when you need it.

It may seem daunting at first, but it is simple to understand once you know where all the pieces fit in the puzzle.

The key takeaway is that completing a solar power installation will save you money, not only on the energy portion of your bill, but on most of the associated fees as well.  

Installing solar panels is a simple and easy process that will pay for itself over time, and eliminate all the risk associated with the rising cost of energy and the fees.  

Wouldn’t it be nice to look forward to getting your power ‘bill’ to see how much money you have earned?