What Is a Utility Tariff? How Energy Tarrifs Work

Colby Ezell / Utility / May 29, 2019

In the U.S. there are regulated and deregulated energy markets — and inside of these markets are different tariffs that each utility has.

Read on to learn what a utility tariff is, why it’s important, what tariff you quality for, and how to save on your electric and gas.

What Is a Utility Tariff?

A utility tariff governs how an energy provider (electric or natural gas) charges the customer for their energy and natural gas usage. Electric and natural gas vendors must submit their tariffs to the government for approval.

There are many different types of tariffs and they can range from 2-10 pages in length. Understanding how these tariffs work is critical to understanding what you are being charged for your electric and gas, and if there are opportunities for savings or refunds.

Here’s a link to an example electric tariff.

Why Is an Energy or Utility Tariff Important?

Simply put, all of your charges are governed by it. It is the document that determines exactly what you will pay and when you will pay it.

If you think there’s been a billing error, you must refer to the tariff. If you think there’s an opportunity to get rebates on new energy-efficient purchases, you must refer to the tariff. If you think there may be a way to reduce your kWh charge or demand charges, you must refer to the tariff.

This is how the energy and gas markets work. The tariff is the governing document.

The Different Types of Tariffs

There are a large amount of different electric and utility tariffs across the different utilities in the United States — and inside of each of these tariffs are many different qualifying factors that must be met to determine which tariff your business qualifies for.

Furthermore, each tariff can have large variations in the actual price per kilowatt-hour. All of this means there can be countless variables that go into the actual price of your electric and gas.

Below are some of the different types of tariffs:

  • Fixed rate
  • Variable rate
  • Simple
  • Large General usage
  • Small general usage
  • 3 Part
  • Flat rate
  • Block rate
  • Power factor
  • Maximum demand
  • Time of use
  • Economy 7
  • Economy 10
  • Green tariff
  • Duel fuel

And many more…

What Tariff Do You Qualify For?

Knowing which tariff you qualify for is paramount for knowing your options, and how they will financially impact your business. Each of the above tariff types can have numerous variations.

For example, in one supplier market, you might qualify for a large general usage tariff if you use over 500,000 kWh per year and generate over 100 Kw in demand each month. But if you drop under that amount for even one month, you don’t qualify.

In other markets, if your heating costs are funded by 30% natural gas (for example) and 70% electric, and you are a manufacturer, you might qualify for a different tariff.

The list goes on as far as variances and qualifications are concerned. In most markets, we see about 75 different variations and qualifications.

Calculating the Tariff

Beyond reading through all the tariffs the provider has (which can range from 10-100 different varieties), you must be able to then calculate which tariff will be right for you.

It’s not as simple as finding a tariff with a better kWh rate. The amount of demand you generate, when you generate it, ratchets, on-peak/off-peak, historical usage, load factor, maximum demand, etc., all factor in.

The scary part is, if you change your tariff, in some cases, you can not change it back for 12 months. We’ve seen this result in large additional costs for clients in the past who attempted to implement a change on their own without doing the calculations correctly.

Here’s an example of a simple electric bill and tariff. Figuring out what the costs should be is quite complex on your own (we’ve yet to see someone get this math problem correct).

Some tariffs can result in significant savings but in some months it results in net losses. The net gain over 12 months might be substantially positive or it might inadvertently be net negative.

So, again, you must be confident in your math and ability to interpret the tariffs.


The tariffs in the utility industry are critical in determining the costs that affect your business and are only one of the dozens of factors our highly trained experts review.

If you would like our industry experts to help you out on a risk-free/shared savings basis simply call us at 1-877-843-7579 or send us an email.

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