Ask the experts: breaking down electricity bills

Finding opportunities to save on energy costs starts with understanding the different charges that make up your electricity bill. Here's what you need to know.

Your organization's electricity bill gives you a window onto how you're using energy, and by understanding it, you can find opportunities to save and become more energy efficient.

If your peak electricity use exceeds 50 kW each month, your bill is calculated differently from residential customers and most small businesses.

“Each one of those [line items] pays for a distinct component of getting electricity to a facility,” says Rob Doyle, an energy expert at the Independent Electricity System Operator (IESO), who helps businesses understand electricity pricing.

“On an electricity bill, there are really two kinds of charges,” Doyle says. First, there are ones that are consumption-based, or kWh charges. Then, there are ones that are peak demand-based, or kW charges.

Electricity costs aren't all fixed

“Demand, in simple terms, is how fast you use the electricity, and energy [consumption] is how much you use,” says energy consultant Stephen Dixon. In other words, if you're in a car, demand is how fast you go down a road, and consumption is how far you go.

By understanding these two concepts, you realize that electricity doesn't have to be a fixed cost and can be managed like any cost of doing business. The key is to track your energy use so you can identify how you can save.

“Almost all of your bill is variable, meaning that it depends on how much you consume and how fast you demand electricity,” Dixon says. “One of the frustrating things many people run into is that they start to track cost, but because the price is changing, they really don't understand what's driving what they're using.”

Your demand charges are based on peak demand, or the highest demand your business reaches each month or billing period. For billing purposes, peaks are usually measured as the highest amount used over a sustained 15-minute period, Dixon points out.

How supply and demand influence price

Residential and small business customers are billed based on time-of-use pricing, which shifts based on the time of day, day of the week and the season.

Larger electricity consumers, on the other hand, are charged based on a wholesale, market-based price, called the Hourly Ontario Energy Price. As the name says, it fluctuates hourly, depending on the demand for electricity throughout the province and the availability of supply.

The wholesale price of electricity is determined in the real-time market administered by the IESO.

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So what's the global adjustment?

Global adjustment is set monthly and covers the cost of maintaining current and building new electricity infrastructure in the province, so we know we'll have enough electricity supply over the long term.

It reflects the difference between the market price of electricity and contracted rates paid to electricity suppliers. It’s also charged based on consumption.

Every Ontario customer pays for the global adjustment. For residential and small business customers, it's built into time-of-use rates.

If your business is a large energy user, you may be eligible to participate in a program designed to help reduce your energy and global adjustment costs, plus provide substantial benefits to the power system as a whole.

It’s called the Industrial Conservation Initiative (ICI), and allows large energy users who participate in the program to pay global adjustment based on their “percentage contribution” to the top five peak Ontario demand hours over a 12-month base period. This means that if your business has some flexibility when it comes to reducing demand during peak periods, as an ICI customer you can also reduce your global adjustment costs.

Find out more about the ICI

Aside from your consumption and the global adjustment, you'll see several other line items on your bill. Here's what they mean.


Delivery-distribution charge

The delivery charge covers the cost of delivering electricity from generating stations to your facility.

This is a variable rate that is regulated by the Ontario Energy Board. It reflects the cost of delivering electricity from the transmission system to your business. The charges are used to build and maintain distribution lines, towers and poles. This charge is determined by your peak use.

Delivery-transmission charge

Transmission rates are also regulated by the Ontario Energy Board and vary. They allow the electricity transmission company to recover the costs of operating and maintaining the high-voltage system that carries electricity from generating stations to your local distribution company.

This charge is also determined by your monthly peak demand. Slowing down the rate at which your business uses electricity is one way to lower your delivery charge and reduce your overall hydro bill, Dixon says.

Regulatory charges

This charge provides for the reliable management of the power system and the administration of the wholesale electricity market. It is approved by the Ontario Energy Board.

Standard supply services administration

This $0.25 charge per month covers a portion of the administrative costs that your utility incurs.

Power factor

Power factor is the measure of how effectively equipment converts electric current into useful power output, such as light, heat or mechanical motion. “Power factor matters because it can cost your business money,” says the IESO’s Rob Doyle. “A low power factor means that your facility isn’t using electricity as efficiently as it could be.”

For instance, large fans and motors may be running, but not fully loaded. Low power factor results in additional charges on your electricity bill and increases the amount of energy demanded from the power grid. To improve a low power factor, businesses can install power factor correction capacitators or harmonic filters.

Remember that understanding your bill is just the starting point for making your energy use – and your operations – more efficient, Doyle says. “A bill is one good input but it can't be the end of your analysis. It should provoke you to ask more questions.”