Delivery Charge vs Supply Charge: Understanding Your Electricity Bill

Your electricity bill appears simple—one line item, one amount due. But hidden within that bill are two completely different charges from two completely different companies, with two different business models. Understanding this split is essential for saving money on energy.

This guide explains what supply and delivery charges are, who controls them, and most importantly, which one you can actually save money on.

The Fundamental Split: Deregulation 101

In deregulated energy markets (like Texas, Pennsylvania, Ohio, and others), the electricity system is split into two functions:

1. Supply (Generation) - Creating the electricity
2. Delivery (Distribution) - Getting it to your home

When you pay your electricity bill, you're paying both. But they work completely differently, and this difference is critical to understanding where your savings opportunities are.

Supply Charges: The Competitive Market

What It Is: The cost of the actual electricity you use. This is determined by wholesale market prices and set by the retail electricity provider (the supplier) you choose.

Who Sets It: Hundreds of competing suppliers. They buy electricity from power plants and wholesale markets, then sell it to you at their chosen rate.

How It's Calculated: Your usage (in kWh) multiplied by the rate per kWh.

Example:
Usage: 1,000 kWh
Supply Rate: 12.5¢ per kWh
Supply Charge = 1,000 × $0.125 = $125.00

Can You Shop For It? YES - This is where you save money by choosing suppliers. In deregulated areas, you can switch suppliers to get a lower rate.

2025 Typical Ranges:

• Texas: 10-13¢/kWh
• Pennsylvania: 12-15¢/kWh
• Ohio: 11-13¢/kWh
• New York: 13-16¢/kWh

What's Included in Supply Charges?

When you pay a supply charge, you're paying for:

• Power Generation: The actual cost to produce the electricity (fuel, equipment maintenance)
• Supplier's Profit: The margin the supplier makes
• Risk Premium: Suppliers add extra cost to hedge against market volatility
• Operating Costs: Customer service, billing, administrative costs

Different suppliers have different profit margins, risk strategies, and operating costs. This is why rates vary—some suppliers are more efficient, some take less profit, some have lower overhead costs.

Delivery Charges: The Regulated Monopoly

What It Is: The cost of moving electricity through the poles, wires, and equipment to reach your home. This is maintained and operated by your local utility.

Who Sets It: Your local utility company, subject to regulation by the state Public Utilities Commission (PUC). Utilities cannot compete—you have one choice for delivery.

How It's Calculated: Usually a combination of fixed monthly fees plus usage-based charges.

Example:
Base Charge: $15.00/month (fixed)
Distribution Charge: 4.2¢/kWh × 1,000 kWh = $42.00
Transmission Charge: 1.8¢/kWh × 1,000 kWh = $18.00
Delivery Subtotal = $75.00

Can You Shop For It? NO - Your local utility has a monopoly on delivery. You cannot choose a different company for this service.

2025 Typical Ranges:

• Texas: 4-7¢/kWh (lower costs due to flat terrain)
• Pennsylvania: 5-8¢/kWh
• Ohio: 4-6¢/kWh
• New York: 6-10¢/kWh (higher costs due to terrain)

What's Included in Delivery Charges?

Delivery charges cover:

• Infrastructure Maintenance: Poles, wires, substations, transformers
• Tree Trimming: Keeping branches away from power lines
• Meter Reading and Maintenance: Reading your meter, repairing/replacing equipment
• Emergency Response: Storm repairs, outage response
• Grid Management: Operating the distribution network
• Utility Profit & Overhead: Utility's operating costs and regulated return on investment

Delivery charges are typically 30-50% of your total bill, depending on your location and electricity market.

Side-by-Side Comparison

Real Bill Example: Breaking Down Your Bill

Let's look at an actual $145 electricity bill and see where the money goes:

Monthly Bill for Home Using 1,000 kWh (December 2025)

• Supply Charge: 1,000 kWh × 12.5¢ = $125.00 (86% of bill - YOU CAN SHOP FOR THIS)
• Delivery Charge: Base $12 + Usage $8 = $20.00 (14% of bill - CANNOT CHANGE)
• Total Before Taxes: $145.00
• Taxes: $18.00
• TOTAL DUE: $163.00

If you switched to a different supplier at 11.5¢/kWh instead of 12.5¢:

• New Supply Charge: 1,000 × 11.5¢ = $115.00
• Savings per month: $10.00
• Annual savings: $120.00

The delivery charge stays the same regardless of supplier—your local utility continues charging $20/month. You cannot negotiate this.

Why This Matters: The Shopping Strategy

Understanding supply vs. delivery helps you make smarter energy decisions:

Focus on Supply to Save Money

Since supply charges are competitive, this is where you can directly save money by shopping for suppliers. A 1% rate difference compounds to $100+ in annual savings.

Accept Delivery Charges

Delivery charges are set by regulators. You cannot negotiate them. Trying to find a "cheaper" delivery provider is a waste of time—it doesn't exist in deregulated markets. Your only option for reducing this portion is reducing usage (energy efficiency).

Don't Confuse the Two When Comparing

Some companies advertise very low rates but hide high delivery costs in fine print. When comparing plans, always look at the total bill, not just the supply rate.

Total Cost Comparison Formula

Your Monthly Bill = (Usage × Supply Rate) + Delivery Charge + Taxes + Other Fees

When comparing two suppliers:

1. Calculate: Usage × Supplier A's rate
2. Add your local delivery charge
3. Add taxes
4. Get total
5. Repeat for Supplier B
6. Compare totals—not just rates

Taxes, Fees, and Other Charges

Beyond supply and delivery, your bill typically includes:

• Sales Tax: Applied to supply charge (varies by state, 0-8%)
• Gross Receipts Tax: Applied in some states
• Municipal Franchise Fee: City/county tax (1-5% of bill)
• Grid Modernization Rider: Temporary surcharge for infrastructure upgrades
• Renewable Portfolio Standard Rider: Cost of renewable energy mandates

These are mandatory pass-through costs. You cannot avoid them, but you can understand how much you're paying for each.

Common Misconceptions

Misconception #1: "Can I switch my delivery company to save money?"

No. Delivery is a monopoly. You have one local utility—that's it. You cannot switch.

Misconception #2: "If I switch suppliers, will my electricity quality decrease?"

No. The same electrons come through the same wires. Delivery is still handled by your utility. Switching suppliers only changes who bills you for generation—not the actual electricity quality.

Misconception #3: "Lower supply rates mean I'll save money no matter what."

Not necessarily. A supplier with a 1¢ lower rate but a $15/month base charge might be more expensive than a supplier with a slightly higher rate and no base charge. Compare total bills, not rates.

Misconception #4: "Deregulation means my delivery utility will go out of business."

No. Your local utility still controls all delivery infrastructure. They continue to make a healthy profit from delivery charges (which are rising, not falling). Deregulation only affects generation/supply.

Action Items: Understanding Your Bill

1. Get Your Current Bill - Have it in front of you
2. Find Supply Charge - Look for "supply," "generation," or "energy charge" line item. Note the ¢/kWh rate.
3. Find Delivery Charge - Look for "delivery," "distribution," or "transmission" line items. Note the total amount.
4. Calculate the Split - Divide supply charge by total (before taxes). This is what percentage you can potentially save on.
5. Use Your PTC - Find your "Price to Compare"—this is your baseline for comparing suppliers.
6. Shop for Suppliers - Go to your state's shopping tool (PowerToChoose, PAPowerSwitch, etc.) and find better rates.
7. Calculate Real Savings - Use the formula above to compare total monthly cost, not just rates.