Fixed Charge
A fixed charge is a set amount that a customer must pay regardless of usage. It is a static fee that appears on every bill and does not vary with the amount of electricity (or other utilities) consumed.
Minimum Bill
A minimum bill is the lowest amount a customer will be charged for a billing period, even if their usage is very low or zero. This ensures that the utility company receives a minimum payment from each customer.
Example Scenario
A utility company charges residential customers based on the following structure:
- Fixed Charge: $10 per month (flat fee, regardless of usage)
- Usage Rate: $0.15 per kWh
- Minimum Bill: $20 per month (if total charges are below $20, the customer must still pay $20)
Comparison Between Two Customers:
Customer A (Low Usage – 50 kWh)
- Fixed Charge: $10
- Usage Charge: 50 kWh × $0.15 = $7.50
- Total Before Minimum Bill: $10 (fixed) + $7.50 (usage) = $17.50
- Since $17.50 is less than the minimum bill of $20, the customer is charged $20 (minimum bill applies).
Customer B (Higher Usage – 150 kWh)
- Fixed Charge: $10
- Usage Charge: 150 kWh × $0.15 = $22.50
- Total Before Minimum Bill: $10 (fixed) + $22.50 (usage) = $32.50
- Since $32.50 is greater than the minimum bill of $20, the customer pays $32.50 (no minimum bill applies.