What’s in a kilowatt-hour?

Posted: August 23, 2021 at 1:53 pm

Each month when you get your electric bill do you calculate the cost per kilowatt-hour (kWh) of the electricity you used?

The calculation is easy: Divide the total cost of the bill by the kWhs used and you get the cost per kWh. There may be a few other charges in there, but a good gauge is the division above. Depending on where you live and which distribution cooperative is your electric provider, I would estimate the cost is between 9 and 14 cents per kWh. Maybe a little more, or maybe a little less.

A friend once told me the price of wheat was a large part of the price of a loaf of bread. Others who raise wheat point out the cost of wheat is only a small part of the price of a loaf of bread with many other costs added to the price of a loaf by the time it reaches the shelves for purchase.

Electricity is much the same. When you get your electric bill, it is easy to think that cost per kWh is all electricity; however, there are other components that go into the cost of a kWh of electricity for delivery to your home or business.

For example, monthly costs you can see include, the meter and transformer at your home or business and the wire from the transformer to the distribution line. In addition, the parts you cannot see are:

  • Thousands of miles of distribution line connecting homes to a substation, which cost on average 4.5 cents per kWh per month. 
  • The substations that convert high voltage power to lower distribution voltage could cost about .5 cent per kWh, per month. 
  • Thousands of miles of high voltage transmission lines connecting the substations to generation resources may cost another .5 cent per kWh per month. 
  • The plants (wind, solar, hydro, natural gas and coal) that generate the electricity may cost on average about 2 cents per kWh per month of your electric bill. 
  • If you add those up, the cost is about 7.5 cents per kWh per month.

Finally, the fuel, and other variable costs (wind, water, sun, natural gas and coal) to generate electricity,  cost an additional 3 cents per kWh per month (sometimes this is referred to as “avoided cost” or the cost you can replace).

You might think wind, sun and water are free, but there are labor, maintenance, insurance and tax costs associated with these fuels. These costs may vary slightly from utility to utility, however if you add them up, that is how your total bill reaches 9 to 14 cents per kWh per month. Of that total, 5 cents may equal the actual cost of electricity, with the remaining 5.5 cents representing the per kWh cost for distribution, transmission, metering and local transformer costs related to delivering power to your home or business.

Out of your total electric bill, less than half is the cost of electricity, and the rest is the cost of delivery.

By Gary Roulet

Board President | Oklahoma Association of Electric Cooperatives