When shopping for electricity rates for your business, the goal is to find the best one that’s at least lower than your current rate. But when you’re comparing the current electricity rate you’re paying to the electricity rates you’re shopping for, you might be comparing the wrong rates. Make sure you’re comparing apples to apples so you don't overpay on future electricity bills.
Sometimes, business owners will compare the average energy rate (AER) to the rates they find online instead of the energy rate (ER). To find the rates you're currently paying, use your latest utility bill. On it, you’ll often find both rates, though sometimes they are buried.
The Energy Rate (ER)
For your energy rate, look for the energy charges section. Your ER will often be shown in dollars or cents per kilowatt hour (kWh). For example, in the bill below line item below, the energy rate is $0.36000 per kWh or 3.6 cents/kWh. That’s the rate you want to compare to the rates you’re quoted or find online when shopping for electricity.
The Average Energy Rate (AER)
While some bills show the average energy rate explicitly, some don’t so you’ll have to calculate the AER. The AER includes the energy charge and the transmission and distribution charges, the cost it takes to get the electricity from the power plant through the power lines to your building.
To calculate the AER, divide the total charges by the number of kWh used in the past month. In this case it would be, $726,433.08 / (16,680744 kWh) = 4.35 cents/kWh.
The AER changes monthly depending on your business’s monthly usage, unlike the ER, which stays the same if you have a set fixed electricity rate. So the AER is 4.35 cents/kWh compared to an ER of 3.6 cents/kWh.
What to Do
When shopping for a new rate, be sure you use the energy rate (ER), rather than the average energy rate (AER). That way you can avoid the pitfall of comparing the wrong type of electricity rates.
This post contains excerpts from a sample Source Power & Gas electricity bill.