November 1996 Volume 2 Issue 20
Understanding Electric Rate Structure and Billing
One part of the monthly electric bill that is perfectly clear to everyone is the amount that must be paid. Not always so clear is the meaning of those other numbers on the bill — kVA, kW, and kWh — and how they relate to the dollars. This article attempts to remove some of the mystery from electricity rates and billing.
DEMAND CHARGE AND ENERGY CHARGE
Electric utilities really have two businesses: the electricity generating business and the electricity delivery business. This becomes evident when we note the separation of charges on commercial and industrial electric bills into a demand charge and an energy charge. The demand charge has to do with the delivery side of the business, with apportioning to each customer their fair share of the cost of building and maintaining the system of wires and transformers and other hardware needed to deliver the electrical energy they consume. The energy charge is based on the cost of generating or otherwise acquiring the energy itself: fuel costs, for example, and the cost of purchasing electricity from another utility.
The maximum amount of power (kW) that a facility draws from the system during the billing period, or the maximum number of kilovolt-amps (kVA), is called the peak demand. It is the basis for the demand charge. Taking a real-world example, a facility billed under Maritime Electric’s July 1, 1996 Industrial rate would pay a demand charge of $5.81 per kVA of billing demand.
Demand Charge = $5.81/kVA x Billing Demand (in kVA)
Demand Charge = $5.81 x 215 = $1249.15
Note: In some facilities served by single-phase lines the demand meter measures kW, not kVA. In these situations the Billing Demand for Industrial rate customers is 1.175 times the measured peak demand in kW.
Most commercial and industrial electricity rates are set up to give a discount on the energy portion of the bill to customers whose energy consumption is large relative to their demand. This is done here in P.E.I. by apportioning the total number of kWh consumed during the billing period between two so-called “blocks” of energy, with the size of the first block being determined by the billing demand. Let’s return to our example. Assume that the 215 kVA demand reading was accompanied by a 110,000 kWh energy consumption reading. The demand determines the size of the first block:
1st Block Size = Billing Demand (in kVA) x 200 kWh/kVA
= 215 kVA x 200 kWh/kVA
= 43000 kWh
Thus, the first 43000 kWh of that billing period’s consumption gets charged at the first block rate of 8.637 cents per kWh:
1st Block Energy Charge = 43000 kWh x $.08637
The rest of the energy is charged at the second block rate of 7.486 cents per kWh:
2nd Block Energy Charge = [Total kWh – 1st Bl’k kWh] x $0.07486/kWh
2nd Block Energy Charge = [110000 – 43000] x $.07486
What would the bill have been if, instead of total kWh consumption being 110,000 kWh, it was less than the first block size? In that situation, all of the consumption would be charged at the first block rate of 8.637 cents per kWh.
Electric utilities have a variety of rate classifications. Each has its specific eligibility criteria. Sometimes a firm meets the criteria for only one rate; sometimes for several. A table showing three rate classifications of particular interest to Island processors appears at the bottom of this page. It is sometimes possible (and advantageous) to switch rate classifications. If the information in the table indicates that your firm might be eligible for a different rate classification — and would save money by switching — call Maritime Electric or discuss the matter with Mike Proud or Ron Estabrooks of the Energy and Minerals Section at 368-5010 (toll free).
Some Maritime Electric Rates of Interest to Processors — July 1996