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Price a bill on a tiered rate
A tiered or "baseline" tariff charges a low price up to a threshold and a higher price above it. That means your average price and the price of your next kilowatt-hour are different numbers, and only the second one tells you what a change in habit is worth.
Charged at the top-tier rate below.
Estimated bill
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Load a utility or enter your own tiers.
What a tiered tariff is, and why regulators build them
A tiered tariff prices electricity in stages. The first slice of a month's usage is billed at one price; once consumption passes a threshold, every further kilowatt-hour is billed at a higher one. The same idea appears under three names — tiers, blocks, or a baseline allowance — and the steps reset when the meter is next read.
The shape is deliberate. This is conservation pricing, and regulators approve it on purpose. The first block is priced below what it costs the utility to serve, so the electricity a household cannot avoid using — refrigeration, lighting, running water, a furnace fan in January — stays affordable for people on low incomes. The revenue given up there is recovered in the upper blocks, priced above cost. The utility still collects what its regulator allowed; the tiers change who pays it, and attach a penalty to discretionary use at the top of the ladder.
The steps do not always climb. One southeastern residential tariff runs a winter block that steps down above its breakpoint, lowering the marginal price for households heating with electricity in the months they need it.
Average price versus marginal price
On a tiered tariff these are two different numbers, and confusing them is the most expensive mistake on this page.
- Your average price is the whole bill divided by the kilowatt-hours it covers. It summarises the past.
- Your marginal price is what the next kilowatt-hour would cost — the rate of whichever block your usage sits in. It is about the future: what a decision is worth.
Take a household whose bill averages 30 cents per kilowatt-hour while its top block is priced at 40 cents. Saving 100 kilowatt-hours does not save $30. Those units come off the top of the ladder, so they are worth 40 cents each and the saving is $40 — a third more than the average implies. It runs the other way too: a new appliance can raise a bill by more than the old average suggests.
Fixed charges widen the gap further. A customer charge lifts your average price, because it is spread across every kilowatt-hour, and has no effect whatever on your marginal price.
Nearly every published guide to saving energy quotes an average. If your tariff has tiers, it is understating your savings by exactly the gap between your blocks.
The California baseline allowance, and why three presets behave differently
Pacific Gas and Electric, Southern California Edison and San Diego Gas & Electric all bill residential service on a tiered structure, but none uses a fixed kilowatt-hour threshold — which is why those presets leave the threshold blank.
They use a baseline allowance instead: a quantity per day, priced in the lower block, calculated for your household rather than published as one figure. It moves on three axes.
- Climate zone. Each utility divides its territory into baseline zones, and the daily allowance differs in each, so coastal and inland addresses on one tariff differ.
- Season. Summer and winter allowances differ, summer generally running June through September. For these three utilities the prices do not change with the season; only the allowance does.
- Heating type. A home with permanently installed electric heat receives a larger allowance, having no gas alternative for a load it cannot avoid.
Your allowance is printed on the bill, near the energy charge breakdown, labelled “baseline”, given either per day or as a total for the period. If it is daily, multiply by the actual number of days in the period — not by 30 — and enter that as the first tier threshold. Do not carry the figure into the other season unchecked.
Which utilities are tiered, and three that are not
Tiered pricing is regional rather than universal. It is standard across California's large investor-owned utilities and throughout Hawaii, where each island utility bills residential service in three ascending blocks. It appears across the Southeast, often in summer only: one Georgia tariff runs three summer blocks and a single flat winter price. Tucson Electric Power uses it in Arizona, as do utilities in South Carolina and Alabama and a Texas municipal utility with four steps.
Three widely held beliefs are wrong, and a tiered model bills these customers incorrectly.
- Salt River Project is not tiered. Its standard residential price plan bills every kilowatt-hour in a single block that changes only with the season.
- Nevada Power, in southern Nevada, is not tiered. Its residential schedule prices all usage at one flat rate, with no blocks and no summer-winter split.
- Arizona Public Service has tiers, but not monthly ones. Its fixed-energy-charge plan assigns each customer to one of three usage tiers once a year, from rolling twelve-month average monthly usage. It does not reset inside a billing period, and does not step up in the month you run the air conditioning hard. A monthly ladder models it wrongly: your marginal price is your tier price, and it is flat.
What this calculator does not model
Five things sit outside the arithmetic, each detectable from your own bill.
- Seasonal thresholds. Several tariffs move the breakpoint between summer and winter, or run tiers in summer only. How to tell: the rate schedule names a summer season, or an off-season bill shows a different boundary.
- Climate-zone baselines. Where the threshold is an allowance rather than a fixed quantity, you supply it yourself.
- Medical and all-electric allowances. Medical equipment or an all-electric home often earns extra quantity in the lower block. How to tell: a credit line or a second baseline quantity.
- Minimum bills. Some tariffs set a floor the total will not fall below. How to tell: a “minimum charge” line, or a light month whose total refuses to drop.
- The delivery-versus-supply split. Delivery is what you pay the wires company to move electricity to your meter, whoever generated it. Where tiers apply to one half only, entering that half understates everything.
One trap deserves naming. Some tariffs run tiers on a base energy charge, then add flat riders — fuel adjustment, regulatory and community benefit charges — to every kilowatt-hour regardless of block. Your true marginal price is the top block plus those adders. Where no tiers apply, the electricity bill calculator uses one blended rate.
Turning the marginal rate into a decision
The marginal price is the number to put in front of any “is this worth doing?” question.
- Estimate the annual kilowatt-hours the change moves. For a single device, the appliance energy cost calculator produces that from wattage and running hours.
- Multiply by the marginal rate, not the average. On a tiered tariff this usually raises the value of the change.
- Check whether the change crosses a threshold. If a saving is large enough to drop you into a cheaper block, part of it is worth the top rate and part the rate below, so a single multiplication overstates it. Run the calculator twice instead — current usage, then expected usage — and take the difference between the two bills.
This cuts against a heat pump as well as for it: a large new electric load pushes usage up the ladder, so the electricity it consumes is priced at the top block, not at your comfortable-looking average. Compare it against gas on the marginal number.
One thing the marginal rate will not justify is shifting a load to another hour. Tiers count quantity, not timing: a midnight dishwasher lands in the same block as a six o'clock one. That calculation belongs to the time-of-use rate calculator.
Frequently asked questions
What is the difference between my average and marginal electricity rate?
The average rate is your total bill divided by the kilowatt-hours it covers, including fixed charges and taxes. The marginal rate is the price of the next kilowatt-hour, which on a tiered tariff is the rate of the highest block your usage reaches. Use the average to describe what a month cost and to compare one plan against another at the same usage. Use the marginal rate to value any change in behaviour, because the kilowatt-hours you add or remove come off the top of the ladder rather than from the middle. On a flat tariff the two converge as usage rises; on a tiered one they can stay far apart.
How do I find my baseline allowance?
It is printed on your bill, near the breakdown of energy charges, usually labelled with the word baseline and expressed either as a quantity per day or as a total for the billing period. If yours is daily, multiply it by the actual number of days in the period rather than by 30, because billing periods run roughly 28 to 34 days. The allowance depends on your climate or baseline zone, on the season, and on whether the home has permanently installed electric heat, so it changes through the year and differs from a neighbour's in another zone. Your utility's website will also list allowances by zone if the bill is unclear.
Do tiers reset every month?
On a normal block tariff, yes. The ladder restarts at zero each billing period, so a heavy July has no effect on the price you pay in August, and there is no annual accumulation to worry about. There is an important exception. At least one large Arizona utility assigns residential customers to a usage tier once a year, based on rolling twelve-month average monthly usage rather than on consumption within the month. On that kind of plan a sustained reduction does move you to a cheaper tier, but only at the annual review, and a single frugal month changes nothing. Check whether your tier is described as a block or as an assignment.
Are tiered rates the same as time-of-use rates?
No, and they reward different behaviour. A tiered rate prices by quantity: the more you use in a billing period, the higher the price of the last units, whatever hour you used them. A time-of-use rate prices by timing: the same kilowatt-hour costs more during defined peak hours than overnight, whatever your monthly total. On a tiered tariff, moving the laundry to midnight saves nothing at all, while using less saves at the top-block rate. Some utilities combine the two, applying a baseline allowance to a plan that also has peak and off-peak periods, in which case both mechanisms work on the same bill.