Word of the Day: Fixed Charges and Volumetric Charges

July 16, 2015 by Alexandra Aznar

If you look at your electricity bill, you will notice different types of charges that make up the total amount owed. These types of charges vary by customer class (residential, commercial, and industrial), utility, and even state. Surcharges, riders, and demand charges are some of the many that could appear on a typical electricity bill, but fixed charges and volumetric charges are always present.

Fixed charges are electricity costs that do not change upon electricity use. This amount is fixed in a customer’s monthly bill. Fixed charges intend to cover a utility’s fixed costs.

Volumetric charges are electricity costs that vary due to electricity use. The more electricity (i.e. kilowatt hours) used, the higher this portion of the bill. Volumetric charges can be a bundle of different elements (e.g. fuel, energy efficiency), or cover only the short-term variable costs a utility incurs. A utility’s specific rate design for each customer class determines which elements comprise a volumetric charge.

Fixed and volumetric charges are all part of electricity rate design. With increasing customer engagement in energy efficiency and renewable energy installations—both of which can decrease the revenue captured through volumetric charges—utilities, regulators, and analysts have started discussing the role each type of charge should play in electricity rate design.