Understanding
a facilities energy use is essential in adopting cost reduction strategies and provides the
possibility of moving to a different rate structure.
An electricity bill is made up of a number of different components.
The customer service charge is a fixed monthly charge that is based on costs for service
connections, metering equipment, meter reading, billing accounting and other administrative costs
The energy charge is based on total energy consumed in the billing month and calculated under
applicable rate schedules with rate structures ranging from simple, flat, or block to complex
seasonal, TOU, or RTP rates
Demand charge is what utilities use in order to recoup the costs of maintaining necessary capacity
as well as ongoing infrastructure costs
The billing demand is a more complicated form of calculating a bill that may be defined to only use
the peak during a specific TOU period or it may be adjusted based on a negotiated customer
Contract demand, also called a Contract Firm level, Subscribed Power, or Hired Power
Demand ratchet is the practice of billing each month for the highest demand set in a previous
period, which may be up to a year
Setting a new peak demand can affect not only the demand charge for the month the peak is set,
but in the case of ratchet demand, the electric bills for the following year
Utilities may bill for low power factor, since if the utility is providing the reactive power this creates
inefficiency in their distribution network. Reactive power charges or credits can be a separate
charge item on a bill. The alternative is for a customer to implement power factor correction at their
site to get power factor closer to 1.00, and at least over the percentage threshold where any
penalties are charged. Then the utility is not providing as much reactive power, and the consumer
obtains monthly savings
Unless a customer is tax-exempt, most energy bills are subject to country, state, municipal, and
sometimes gross receipts taxes.
It is also important to look at how the right rate can be selected based on the usage pattern to keep
energy costs low. If you are on a Time-of-Use rate and have some flexibility in your hours of usage,
you may be able to reduce energy costs by shifting load from On-Peak to Off-Peak hours. For rates
with Power Factor charges, taking steps to correct power factor to get it closer to 1.00, and at least
over the percentage threshold where any penalties are charged, can provide monthly savings.
Customers on RTP rates have the potential for considerable savings if they can move energy from
high price periods to low price periods, or reduce energy use during high price periods. One way
that customers can accomplish this is through on-site generation