Which billing component covers fixed costs in residential service?

• A. Minimum charge
• B. Energy charge
• C. Service charge
• D. Late fee

Answer: (A)

Fixed costs are expenses that don’t depend on how much electricity you use, such as maintaining the distribution network, meters, billing systems, and customer service. The minimum charge is the flat amount billed each period to ensure those fixed costs get recovered even if you use little or no energy. The energy charge, in contrast, varies with how many kilowatt-hours you consume. A service charge is another fixed fee for access to service, but the purpose most closely aligned with covering fixed costs in a residential bill is the minimum charge. A late fee is just a penalty for paying late and doesn’t relate to fixed-cost recovery.