Electric Rate Fundamentals
Analyzing Electric Utility Data
Electrical use profiles from different facilities can have different shapes based on the type of heating (electric or gas) and cooling equipment (if any), and other electric loads such as computers, pumps, dryers, etc.
Base load consists of non-weather dependent loads such as lighting, fans, plug loads (computers, etc.) and electric domestic hot water. This is demand for electricity that is consistent and is unaffected by variables such as seasonal climate.
Variable loads consist of demand for electricity that fluctuates over a period of time, usually a year, such as weather-related variability for heating and cooling loads. Other loads that could be considered part of the variable load are loads that are not part of normal operations (electric kilns) and seasonal loads (stadium lighting).You can better determine areas of potential savings by graphically displaying monthly electric consumption and electric demand profiles.
Base or basic charges refer to a minimum cost of service charged for each utility meter. A commercial base charge can range from less than $5 to well over $100 per month. The base charge could become important for those services that are not used for several consecutive months, such as field lighting or irrigation pumping. It may be cost-effective to cancel service to save the base charge for the months of non-use. However, the reactivation charge must also be considered.
Consumption Charges
Consumption charges are for the amount of electricity consumed. In the Northwest, rates vary from less than 1 cent to more than 6 cents per kilowatt-hour (kWh). Most utilities have commercial rate schedules with declining block charges. The more energy you use, the cheaper it gets. For example:
- First 20,000 kilowatt-hours billed at $.0565 per kWh
- Next 50,000 kilowatt-hours billed at $.0450 per kWh
- Greater than 70,000 kilowatt-hours billed at $.0415 per kWh
An increasing block rate does the opposite. The more energy you use, the more it costs per kilowatt-hour. Declining block rates are more common for commercial customers. Increasing block rates are very rare. Typically, if you do find an increasing block rate, it will be a residential rate schedule.
Some utilities have seasonal rates, with the cost per kilowatt-hours going down during the warmer months. This is because the Northwest is a winter peaking region. Electricity usage goes up in the winter. The basic law of supply and demand causes utilities to charge a higher rate during the winter months, and a lower rate during the summer months.
Although not yet common in the Pacific Northwest, utilities are moving toward a less expensive charge for electricity consumed during the off-peak part of a day. For example, between 9 p.m. and 6 a.m. (off-peak hours) the rate per kilowatt-hour could be 2 cents less than the rate for electricity consumed between 6 a.m. and 9 p.m. (peak hours). Such off-peak rates make strategies such as thermal storage and earlier building warm-up more cost effective.
Demand Charges
Demand is the rate of electrical usage measured over increments of time (usually 15 or 30 minutes). It is measured in kilowatts (kW). Demand charges are billed for your peak kilowatt (kW) use averaged over these increments of time. Each month, when the meter is read, the demand indicator is reset to zero. Demand charges in commercial rate schedules vary greatly from no charge to more than $6 per kilowatt. A spike in the electric demand will result in additional costs on the utility bill and, with some utility rate schedules, may impact demand charges year round. Therefore it is imperative to understand and minimize demand.
Off-Peak Demand Rate
Some utilities in the Northwest now offer an off-peak demand rate. Example:
- First 50 kW: no charge
- Everything greater than 50 kW: 63 cents per kW of billing demand per month during off-peak periods as defined by Bonneville Power Administration
- $4.50 per kW of billing demand per month during on-peak periods as defined by Bonneville Power Administration
Ratchet Demand Charge
Some utilities have a ratchet charge on the demand. The highest monthly demand experienced for the year becomes your annual peak. The annual peak is then used to ratchet the monthly demand peaks for the next 11 months. For example, the minimum demand charge for any month is 60 percent of the highest demand in the preceding 11-month period. Demand is a very important target for reduction if your utility has a ratchet clause on the demand. Example of a ratchet demand charge:
- Your demand in December is 800 kW, and you pay $5 per kW.
- You will pay a $4,000 demand charge for December.
- The following June, the demand meter reads 150 kW. You are charged $2,400 rather than $750. (Sixty percent of 800 kW is 480 kW, times $5 per kW, equals $2,400.)
This increase in demand cost of $1,650 is due to the ratchet clause in the rate schedule. This same ratchet will be charged in all the other warm months, even when demand is low.
Factors That Can Increase Demand Costs
Following are some examples of situations that can increase electrical demand charges. If these occur during peak or near peak conditions, they can cause a “spike,” or sharp increase, in the electric demand. Peak conditions occur when all or most of the facility lighting is on and there is a peak heating or cooling condition, such as morning warm-up during cold weather or afternoon cooling during hot weather. The reference to heating only applies if the heating is electric.
- Turning on football field lighting if it’s on the same meter as adjacent facilities*
- Operating an electric kiln*
- Operating a large motor such as on a sump pump or sewage lift station*
- Turning on all the electric resistant heating units at the same time during warm-up
- Extensive use of portable electric heaters
- Providing 100 percent outside air for ventilation during cold weather
- A large electric domestic hot water tank that operates all (or most) heating coils any time it heats water
- Starting all the kitchen electric ovens simultaneously
- Starting engine block heaters simultaneously
- The meter is read incorrectly
- An incorrect multiplier is applied to your demand reading
* if during facility peak load periods
Power Factor
Power factor is a measure of the apparent power compared to the real power. This can be a difficult concept to understand. The important thing to note is that utilities will charge extra if a facility has a power factor problem (for example, below 90 percent). It may show up on the bill as “KVAr HOURS” (reactive power) or “PFA” (Power Factor Adjustment).
Facilities with a large number of motors, light fixtures with magnetic ballasts, and other equipment that has capacitors can have significant power factor charges. Some plug-in items, such as computers, can also have a negative impact on the power factor of a facility. If power factor is a big problem, you can install components on the electrical distribution system of a facility to help correct the problem. These devices can be quite expensive, but they may be cost-effective if power factor charges are a significant part of the bill. Contact your utility representative to discuss options for correcting power factor problems.
For a more complete explanation, see Reducing Power Factor Cost (PDF file).