Electricity Budget vs Actual: Variance Analysis
The short answer
When the electric bill misses budget, the question leadership asks is why — and "rates went up" isn't an answer. Split the variance into usage (kWh), demand (kW), generation price, capacity, delivery riders and taxes. Most months, one or two of those explain nearly all of the difference, and each points to a different fix: operations, procurement, or nothing at all.
For building the budget in the first place, see building an energy budget; for forecasting 12–24 months out, see energy budgeting in an inflationary market.
The six variance buckets
| Bucket | Formula | Who owns the fix |
|---|---|---|
| Usage (kWh) | (Actual kWh − Budget kWh) × Budget ¢/kWh | Operations |
| Generation price | (Actual ¢/kWh − Budget ¢/kWh) × Actual kWh | Procurement |
| Demand (kW) | (Actual kW − Budget kW) × $/kW | Operations/facilities |
| Capacity | Tag change × capacity rate | Operations (peak management) + procurement |
| Delivery riders | Actual rider $ − Budget rider $ | Nobody short-term (regulated) |
| Taxes/other | kWh tax tier effects, fees | Usually small |
Worked example: a 1.2 million kWh/year site in August
| Item | Budget | Actual | Variance | Driver |
|---|---|---|---|---|
| kWh | 110,000 | 121,000 | +11,000 kWh | Hot month, extra shift |
| Generation ¢/kWh | 9.40¢ | 9.40¢ (fixed) | — | Contract held |
| Generation $ | $10,340 | $11,374 | +$1,034 | All usage |
| Peak kW | 260 | 295 | +35 kW | Two chillers started together |
| Demand $ (at $10/kW illustrative) | $2,600 | $2,950 | +$350 | Demand |
| Delivery riders | $3,100 | $3,150 | +$50 | Regulated |
| Total | $16,040 | $17,474 | +$1,434 | 72% usage, 24% demand |
The story for leadership: the fixed contract worked; the miss came from weather-driven usage and a preventable demand spike. The action: stagger chiller starts, not re-bid supply.
Ohio-specific items that trip up budgets
- June 1 resets. Utility default prices, capacity charges and some riders change every June 1. Budgets built on a calendar year need a mid-year step.
- Capacity tag resets. Your tag changes each June based on last summer's peak hours — a hot summer can raise next year's generation cost.
- Rider updates. Riders true up on their own schedules; AEP Ohio's new three-part bill (fall 2026) will make them easier to track.
- Estimated reads. Can shift usage between months; reconcile on the next actual read.
FAQ
Why is my electric bill over budget if my rate is fixed?
Usually usage or demand. A fixed generation price doesn't fix kWh, peak kW, delivery riders or taxes.
How often should I review electricity variances?
Monthly for large sites, quarterly for small ones — and always after a hot or cold month.
What's the most controllable variance?
Demand (kW). Staggering equipment starts and controlling HVAC are cheap and quick.