Every electricity bill in a deregulated market contains two distinct cost components, yet most households have never examined them separately. The supply charge covers the cost of generating or procuring the electricity a household consumes. The delivery charge covers the cost of transmitting that electricity through the grid.
Understanding where each dollar goes is the first step toward determining whether a bill is high due to excessive consumption or an overpriced rate. Arbor, an automated energy-switching platform founded in 2022 and operating in 12 deregulated states, focuses exclusively on the supply side, where cumulative savings across its customer base have surpassed $7.5 million.
What the supply charge on your electric bill actually covers
The supply charge, sometimes labeled “generation charge,” “energy charge,” or “basic service,” covers the cost of generating the electricity that flows into your home. Your supply rate appears as a per-kWh price multiplied by total monthly consumption. A household using 1,000 kWh at a supply rate of 10 cents per kWh pays $100 in supply charges for that billing period.
Supply typically accounts for 40 to 60% of a residential electricity bill, according to analysis from PowerOptions, a nonprofit energy buying consortium. The remaining portion falls under delivery, taxes, and regulatory fees. That ratio means a reduction of even 2 to 3 cents per kWh on the supply side can produce meaningful savings when multiplied across 12 months of consumption.
In deregulated states, households can choose which company supplies their electricity. Customers who never select a competitive supplier remain on their utility’s default supply rate, often called “price to compare” or “standard offer.” These default rates are not designed to be competitive. They fluctuate based on wholesale procurement costs set through regulated auctions.
What delivery charges cover and why they stay the same
Delivery charges pay for the physical infrastructure that transports electricity from generating facilities to your home: power lines, transformers, substations, meters, and the personnel who maintain them. Your utility sets these rates, and state public utility commissions regulate them.
Three categories make up the delivery portion:
- Distribution: the local wires connecting substations to homes
- Transmission: the high-voltage lines moving power from generators to substations, regulated by the Federal Energy Regulatory Commission
- Service fees: billing, metering, and customer support at a fixed monthly rate
How to calculate whether your utility is charging you too much
A single number reveals whether your bill reflects a rate problem or a consumption problem: your effective rate per kWh.
Divide the total bill amount by the total kWh consumed that month. If a bill totals $200 on 1,100 kWh of consumption, the effective rate is approximately 18.2 cents per kWh. Compare that figure against the average residential rate for your state. The U.S. Energy Information Administration publishes state-level residential rates monthly, and the national average reached 18.05 cents per kWh as of early 2026 according to EIA data.
If your effective rate significantly exceeds your state average, the supply charge is the most likely source of overpayment. Delivery rates rarely deviate between neighbors served by the same utility. But supply rates vary widely depending on whether a customer is on a utility default rate, an expired promotional plan, a variable-rate contract, or a competitive fixed-rate plan.
State average rates that serve as benchmarks
Average residential rates differ sharply by region. Among the states where Arbor operates,U.S. Energy Information Administration data through December 2025 shows:
- Pennsylvania: roughly 17.8 cents per kWh
- Ohio: approximately 15.5 cents per kWh
- Illinois: around 18.1 cents per kWh
- Massachusetts: approximately 31.5 cents per kWh
A household in Massachusetts paying 35 cents per kWh has a narrower gap to close than one in Ohio paying 20 cents when the state average sits near 15.5.
These averages blend customers on competitive plans with those on utility defaults, meaning a customer who actively shops for supply rates will typically pay below the state average, not above it.
Why do two charges exist in the first place
Electricity deregulation, which began in the 1990s, separated generation from delivery. Generation was opened to competition on the premise that multiple suppliers bidding for customers would lower prices. Delivery remained a regulated monopoly because duplicating the physical grid would be impractical.
More than a dozen states and the District of Columbia now allow residential customers to choose their electricity supplier, according to American Public Power Association data. Customers in regulated states receive a single bundled rate with no ability to switch.
How overpriced supply charges go unnoticed
Most customers look at the total dollar amount on their bill, not the per-kWh supply rate buried several lines down. A bill that rises from $140 to $165 between March and July appears to reflect seasonal cooling demand. In many cases, it does. But a portion of that increase may stem from a supply rate that climbed after a fixed-rate contract expired and rolled onto variable pricing, or from a utility default rate adjustment that took effect without prominent notice.
The diagnostic step is straightforward: compare per-kWh supply rates across consecutive bills. If the rate increased while consumption remained steady, the bill grew due to pricing, not behavior. Arbor’s published methodology performs this comparison automatically, retrieving actual usage data and benchmarking the current supply rate against every available fixed-rate plan in a customer’s utility territory.
Arbor holds state-issued broker licenses in each market it serves, including Pennsylvania (A-2023-3043382), Ohio (23-125153E), Massachusetts (EB-571), Illinois (23-0681), and New Jersey (EA-0727).
What the two-charge structure means for controlling electricity costs
Delivery charges are outside a household’s control. They fund a shared infrastructure system regulated at the state and federal levels. Supply charges, by contrast, are the one portion of the bill that customers in deregulated markets can directly influence by choosing a different provider.
A household that focuses exclusively on reducing consumption through thermostat adjustments or appliance upgrades addresses only one variable. A household that also secures a competitive supply rate addresses the other. Customers who pay the least for electricity in deregulated markets tend to manage both, consuming efficiently while keeping their supply rate below their utility’s default rate.
