Trace Your Family's Energy Dollar From the Meter and Pump to the Grocery Bill

Quick quiz. What does your family spend on energy? If you answered with the number on the electric bill, you are well short of the way there, and so is almost everyone who writes about this subject. The people in Washington who talk about "energy costs" usually mean the bill that arrives in the mailbox. The real figure is bigger, and a good part of it is hidden inside the price of bread.

Here is the plan. I am going to give you a worksheet you can run at the kitchen table with a calculator and last month's bills. It works in six steps, and I will show every bit of arithmetic. To keep it honest, I will run it first on a hypothetical household with invented round numbers. Every figure below is made up for illustration. None of it is data about any real family, city or utility. Your numbers go in the blank worksheet at the end.

Why the meter is only the start

Energy reaches your wallet three ways.

1. Directly, at the meter. Your electric bill and your natural gas, propane or heating oil bill.
2. Directly, at the pump. Gasoline or diesel for the cars and trucks you drive.
3. Indirectly, in everything you buy. A tractor burns diesel. Nitrogen fertilizer is made with natural gas as its main raw material. A truck hauls the grain, the flour and the finished loaf. A factory runs on power. A cooler keeps the milk cold. Plastic packaging is made from petroleum and natural gas products. A grocery store keeps the lights and freezers running all night.

When energy gets pricey, the first kind shows up on a bill you can read. The third kind shows up as a quiet bump on the shelf tag. That is why a rise in fuel prices does not stay at the gas station. It rides along in the supply chain, and your family pays it a nickel at a time.

Step 1: read your electric bill the right way

Start with the electric bill, because it is the one most people misread. A typical bill has four kinds of charges.

• Fixed (customer) charge. A flat monthly amount for having a connection, a meter and a billing system, whether you use a single kilowatt-hour or a thousand. You pay it even if the house is empty, which is the utility's way of saying that it missed you.
• Energy charge. A price per kilowatt-hour (kWh) multiplied by what you used. Some utilities use tiers, where the price rises as your use rises. Some use time-of-use rates, where the price depends on the hour.
• Riders. Add-on line items approved by your state utility regulator. A fuel adjustment rider, for example, passes through changes in the cost of fuel and purchased power. Others recover storm repairs, new plants, energy efficiency programs and the like. Riders on a utility bill are a lot like riders on a congressional bill: nobody remembers voting for them, and they are always worth reading.
• Taxes and fees. Often a percentage of the subtotal.

Now the worked example. Our hypothetical household used 900 kWh last month, and the bill looked like this. Every number is invented.

The "headline" rate on this bill is 11 cents per kWh. The rate you really paid is the all-in rate: $141.75 divided by 900 kWh, which is $0.1575, or 15.75 cents. That gap, between 11 cents and 15.75 cents, is the fixed charge, the riders and the tax. When someone quotes you a rate, ask which one they mean.

One more number worth having is the marginal rate, the cost of the next kilowatt-hour. In this invented bill, the next kWh costs the energy charge plus the fuel rider, which is $0.11 + $0.02 = $0.13, plus 5 percent tax: $0.13 x 1.05 = $0.1365. So an extra 100 kWh, say from a space heater running through a cold snap, costs 100 x $0.1365 = $13.65. Fixed charges do not move when you use more, so the marginal rate is what you should use when you decide whether to run something.

Step 2: natural gas or other heating fuel

Same method, simpler bill. Our hypothetical household heats with natural gas. The bill shows a customer charge of $10.00 and a usage charge based on therms, a unit of heat energy. The household used 50 therms at $1.30 per therm.

• Usage: 50 x $1.30 = $65.00
• Customer charge: $10.00
• Total: 65.00 + 10.00 = $75.00

If you heat with propane or heating oil, use gallons times price per gallon and add any delivery fee. If you heat with electricity, your heating cost is already in Step 1.

Step 3: gasoline at the pump

Gallons used equals miles driven divided by miles per gallon. Our household has two vehicles.

• Car A: 600 miles in the month at 25 miles per gallon. 600 / 25 = 24 gallons.
• Car B: 900 miles in the month at 30 miles per gallon. 900 / 30 = 30 gallons.
• Total: 24 + 30 = 54 gallons.

At an invented price of $3.50 per gallon: 54 x $3.50 = $189.00. If you do not track mileage, use your fuel receipts for the month and add them up. Diesel truck owners do the same with diesel.

Step 4: the energy hidden in your grocery basket

This is the step nobody does, and it is the one that changes the picture. You cannot read the energy share of your groceries off a receipt. You have to estimate it, and the honest way is to state your assumption and test it.

Our hypothetical household spends $900 a month on groceries. Suppose, for illustration only, that 8 percent of what it pays for food covers energy costs somewhere along the chain: farm fuel and fertilizer, processing, trucking, packaging, refrigeration and the store's own power bill. The 8 percent is an invented placeholder, not a measured figure. Then:

• Energy hidden in groceries: 8% x $900 = 0.08 x 900 = $72.00

Because that percentage is a guess, test it at both ends.

• At 5 percent: 0.05 x 900 = $45.00
• At 12 percent: 0.12 x 900 = $108.00

To replace my placeholder with a real number, go to the website of the Department of Agriculture's Economic Research Service, which publishes a series on how each food dollar is split among the parts of the food system, and look for the energy share. Use their latest figure, write down the year, and rerun the line. The point of the exercise is not to be exact. It is to see that the share exists and that it is not zero.

Step 5: add it up

Check the sum: 141.75 + 75.00 = 216.75. Then 216.75 + 189.00 = 405.75. Then 405.75 + 72.00 = 477.75.

The three bills a family can see add up to $405.75. The hidden fourth item lifts the total to $477.75. Now divide by income. Suppose our hypothetical household brings in $6,000 a month before taxes. Then 477.75 / 6,000 = 0.079625, or about 7.96 percent. Call it 8 percent of gross income, once you count all four items.

Now a second hypothetical. Suppose another household has the same energy bills and the same grocery basket, but earns $3,000 a month. Then 477.75 / 3,000 = 0.15925, or about 15.9 percent. Same energy, same dollars, double the burden. That is why energy prices work like one of the most regressive taxes nobody ever voted on. A policy that raises fuel prices does not hit a banker and a bus driver the same way.

Step 6: the shock test

Now see what a price jump does. Use three invented shocks to the first household.

• Gasoline up 20 percent: 20% x $189.00 = 0.20 x 189.00 = $37.80 more per month.
• Fuel rider up 50 percent: 50% x $18.00 = $9.00, plus 5 percent tax: 9.00 x 1.05 = $9.45 more per month.
• Energy in groceries up 20 percent: 20% x $72.00 = $14.40 more per month.

Add the three: 37.80 + 9.45 + 14.40 = $61.65 more per month. Over a year, 61.65 x 12 = $739.80. As a share of the household's $6,000 income, 61.65 / 6,000 = 0.010275, or about 1 percent.

A family can take a one percent hit. What it cannot do is take one every time a pipeline is blocked, a power plant is retired early, or a rule adds a new cost to a fuel supply, and have no say in the matter. For one example of how a permit fight can turn into a decade of uncertainty for supply, see From Application to Revocation, the Thirteen-Year Saga of Keystone XL.

A second case: the long commute

The first household lives close to work. Now take a hypothetical rural household, again with invented numbers, because distance is the hidden variable in every family's energy bill. A town of ten thousand with no bus line is a different budget from a city with a train.

• Pickup: 1,500 miles in the month at 15 miles per gallon. 1,500 / 15 = 100 gallons.
• Second car: 800 miles at 32 miles per gallon. 800 / 32 = 25 gallons.
• Total: 100 + 25 = 125 gallons, and at $3.50 that is 125 x $3.50 = $437.50.

Compare that with the first household's $189.00 for gasoline. The difference is 437.50 - 189.00 = $248.50 a month, or 248.50 x 12 = $2,982 a year, for no reason except where the house and the job happen to sit. When a policy raises fuel prices and promises that people can "just switch," ask how a family forty miles from the nearest city is supposed to do that, and who is paying for the new truck.

How a rate request works and where you come in

Most households buy electricity from a utility whose prices are set by a government body, usually called a public utility commission or public service commission, though the name varies by state. A utility that wants to raise rates files a request, the commission takes evidence, and it decides how much money the utility may collect and what return it may earn on its investments. Many states have a consumer advocate who argues for customers, and most hold public hearings and take written comments. Cooperatives and city-owned utilities often set their own rates through an elected or appointed board instead. Check which kind you have, because it tells you where to show up.

Your worksheet gives you something most commenters lack, which is a number. A comment that says "I use 900 kWh a month, my all-in rate is 15.75 cents, and a request of this size would add this many dollars a year to my bill" is worth more to a commissioner than a page of adjectives.

The blank worksheet

Copy this onto paper. Use your last full month of bills.

1. Electric bill: total dollars $____ and kWh used ____. All-in rate: dollars divided by kWh = ____.
2. Fixed charge from the bill: $____. Riders from the bill: $____.
3. Gas, propane or heating oil: total $____.
4. Gasoline and diesel: gallons ____ x price per gallon $____ = $____.
5. Monthly grocery spending: $____. Energy share of food, from USDA or your own stated guess: ____%. Hidden energy: grocery spending x share = $____.
6. Add lines 1, 3, 4 and 5 (use the bill total for line 1): $____.
7. Gross monthly income: $____. Energy share of income: line 6 divided by line 7 = ____%.
8. Shock test: for each item, multiply the dollars by 0.10 (a 10 percent rise) and add them: $____ per month, times 12 = $____ per year.

Run it twice a year. Keep the paper. When a utility files a rate request, or a politician promises that a new energy plan will cost you "just pennies," you will have your own baseline to measure it against.

What the worksheet says about policy

Here is where I turn from the calculator to the argument, since a worksheet that cannot change a mind is not worth the paper.

Conservatives sometimes get accused of caring only about oil companies. That has it backwards. The case for abundant, affordable energy is a case about the bus driver, the farmer, the single mother and the retiree on a fixed income, and the worksheet shows why. Energy is a cost on everything else, and it falls hardest on the household with the least room in the budget. Every time a government makes energy more expensive on purpose, it sends the bill down the income ladder.

Fair is fair, so let me give the other side its best point. Energy rules often exist for good reasons: cleaner air, safer wells, protected water. Some costs are real, and a rule that prevents a spill or an unhealthy haze is worth money. Nobody serious argues otherwise. The question is whether a given rule's benefit is worth its price, and who pays. Ask for the number. For the principle behind that question, read Regulation protects us, so why count the cost? Because someone pays it.

For the wider supply picture, All of the Above, Graded on What a Family Actually Needs From Power grades each power source, and How the Power Grid Really Works and Why Supply Must Match Demand Every Second explains why the grid is more fragile than people think. Remember that the best energy policy of the last fifty years was often the one that got out of the way, as in Eight Days Into His Term, Reagan Scrapped Oil Price Controls for Good. For how price jumps roll through a household budget more broadly, see three households and one grocery bill, budget scenarios when prices jump, and for why inflation hits your family without a vote, Inflation is the one tax that never needs a vote in Congress.

The bottom line

• Your real energy cost is the electric and gas bills, plus gasoline, plus the energy built into your groceries. Add them up once, in dollars and as a share of your income, and you will know your own baseline.
• Read your bill's all-in rate, not the headline rate. Fixed charges, riders and taxes change the number, and the riders are where a regulator's decisions show up.
• Energy costs hit the lowest-income household hardest because the same dollars take a bigger share of a smaller paycheck. That is the working-family case for affordable, abundant supply.
• When a utility asks for a rate increase or a politician promises an energy plan, bring your worksheet. Ask for the dollar cost per household, not the slogan.