Two parts of one price
Most household energy bills are built from two kinds of charge. One depends on how much you use. The other does not. The first is the unit rate, a price per unit of energy, usually per kilowatt-hour for electricity and often for gas. The second is a fixed charge that applies for each day or month you are connected, whether you use a lot, a little or nothing at all.
The fixed part is commonly called a standing charge. Other names include customer charge, service charge, basic charge, fixed charge or connection charge. The wording varies by country and utility, but the idea is the same.
What the unit rate covers
The unit rate is multiplied by your usage, so it rises and falls with it. Depending on the plan, it may include the cost of the energy itself, some delivery costs, and some taxes or levies. Where delivery and supply are billed separately, each may have its own per-unit rate. Some plans have more than one unit rate, for example one for peak hours and one for off-peak, which is the idea behind time-of-use tariffs.
Because the unit rate is tied to use, it is the part you can influence by using less energy or shifting when you use it.
What the standing charge covers
A standing charge is meant to pay for costs that exist whether or not you use much energy. These typically include:
- Maintaining the wires or pipes that connect your home to the wider system.
- Metering, meter reading and the equipment involved.
- Billing, customer service and account administration.
- In some places, a share of policy or social program costs, depending on how the regulator or government has set up the charges.
The exact mix differs between regions and sometimes between suppliers. The reasoning is that a network has to be built and kept in working order to serve a home even if the occupants are away, so part of the cost is recovered through a fixed amount. The article on how electricity grids work describes the system those costs relate to.
A worked comparison
Suppose two plans, with invented numbers for illustration:
- Plan A: a standing charge of 60 cents per day and a unit rate of 20 cents per kWh.
- Plan B: a standing charge of 30 cents per day and a unit rate of 24 cents per kWh.
Take a 30-day month.
For a household using 300 kWh:
- Plan A: 30 x 0.60 = $18.00, plus 300 x 0.20 = $60.00, for a total of $78.00.
- Plan B: 30 x 0.30 = $9.00, plus 300 x 0.24 = $72.00, for a total of $81.00.
For a household using 600 kWh:
- Plan A: $18.00 plus 600 x 0.20 = $120.00, for a total of $138.00.
- Plan B: $9.00 plus 600 x 0.24 = $144.00, for a total of $153.00.
In this example Plan A is cheaper at both levels, but the gap widens or narrows depending on the numbers. Try the same plans at a low level of use, 100 kWh. Plan A comes to $18.00 plus $20.00, which is $38.00, while Plan B comes to $9.00 plus $24.00, which is $33.00. At low use, the plan with the smaller standing charge wins. The break-even point is where the two totals match: the standing charge difference of $9.00 per month equals the unit rate difference of 4 cents times the kWh, so 9 / 0.04 = 225 kWh. Below about 225 kWh in that month, Plan B costs less. Above it, Plan A costs less.
Real plans have more variables, but the principle holds. A higher standing charge with a lower unit rate tends to suit heavier users. A lower standing charge with a higher unit rate tends to suit lighter users, such as small apartments or second homes.
Why standing charges attract debate
Because the fixed part is paid regardless of use, it can weigh more on households that use little energy, which often includes small homes and some lower-income households. It also reduces the money saved by cutting back. If you reduce your usage by 10 percent, your unit-rate cost falls by 10 percent but your standing charge does not move, so your total falls by less than 10 percent.
Some regulators and consumer groups have discussed whether more cost should be recovered through the unit rate, or whether standing charges should be reduced or varied for certain groups. Others point out that shifting costs to the unit rate would make those who use more pay a larger share of the network, and could weaken incentives to be efficient in the other direction. These are policy debates with trade-offs, and the outcome differs by place.
Reading the lines on your bill
Look for the standing charge as a rate per day (for example, a number of cents per day) multiplied by the number of days in the billing period. Check that the number of days matches the period on the bill. Then look for the unit rate or rates, and the kWh figure to which they apply. The pillar guide on how to read your energy bill places these lines within the wider layout, and the explanation of kilowatt-hours shows how usage is turned into a charge.
Practical points
- When comparing plans, include the standing charge in the comparison and use a realistic usage figure.
- Be careful with headline unit rates alone. A low rate may be paired with a higher daily charge.
- If you are unsure why your charge is what it is, ask the supplier or check your regulator’s website.
This is general information, not financial advice. Charges and the way they are named depend on your location and supplier.