Energy Management Customer Perpective


Published on

1 Like
  • Be the first to comment

No Downloads
Total views
On SlideShare
From Embeds
Number of Embeds
Embeds 0
No embeds

No notes for slide

Energy Management Customer Perpective

  1. 1. Energy Management : Customer Perspective Saifullah Memon
  2. 2. ELECTRIC RATES FOR COMMERCIAL AND INDUSTRIAL CUSTOMERS <ul><li>INTRODUCTION </li></ul><ul><li>The main focus of this topic is on rates and is to provide information on how an average customer can identify potential rate-related ways of reducing its energy costs. </li></ul><ul><li>The purpose is to present some general cost background and guidelines to better understand how to identify potential energy cost savings measures. </li></ul>
  3. 3. General Information : History <ul><li>Historically, electric utility rate structures were developed by the utilities themselves within a much less complex regulatory environment, by simply considering market factors (demand) as well as cost factors (supply). </li></ul><ul><li>Today the increasing pressures to develop more competitive markets have forced utilities to reconsider their traditional pricing procedures. </li></ul><ul><li>Other factors affecting today’s electric markets include rising fuel prices, environmental concerns, and energy conservation mandates. </li></ul><ul><li>These factors and pressures have affected electric utility costs and hence their rates to their final customers. </li></ul>
  4. 4. General Information : History Continue….. <ul><li>In general, electric rates differ in structure according to the type and class of consumption. </li></ul><ul><li>Differences in rates may be due to actual differences in the costs incurred by a utility to serve one specific customer vs. another. </li></ul><ul><li>Utility costs also vary according to the time when the service is used. Customers using service at off peak hours are less expensive to serve than on-peak users. </li></ul><ul><li>Since electricity cannot be stored, and since a utility must provide instantaneous and continuous service, the size of a generation plant is determined by the aggregate amount of service taken by all its customers at any particular time. </li></ul>
  5. 5. MAIN COST ELEMENTS <ul><li>The main cost elements generally included in ratemaking </li></ul><ul><li>activities are: </li></ul><ul><li>ENERGY COSTS, </li></ul><ul><li>CUSTOMER COSTS, </li></ul><ul><li>DEMAND COSTS </li></ul>
  6. 6. UTILITY COSTS <ul><li>Utilities perform their activities in a manner similar to that of any other privately-owned company. </li></ul><ul><li>The utility obtains a large portion of its capital in the competitive money market to build its system. </li></ul><ul><li>It sells a service to the public. It must generate enough revenues to cover its operating expenses and some profit to stay in business and to attract capital for future expansions of its system. </li></ul><ul><li>In general there are two broad types of costs incurred by a utility in providing its service. </li></ul><ul><li>First, there are the fixed capital costs associated with the investment in the facilities needed to produce (or purchase) and deliver the service. Some of the expenses associated with fixed capital costs include interest on debts, depreciation, insurance, and taxes. </li></ul>
  7. 7. UTILITY COSTS……. <ul><li>Second, there are the expenses associated with the operation and maintenance of those same facilities. </li></ul><ul><li>These expenses include such things as salaries and benefits, spare parts, and the purchasing, handling, preparing, and transporting of energy resources. </li></ul><ul><li>The rates paid by utility customers are designed to generate the necessary revenues to recover both types of costs. </li></ul>
  8. 8. Cost Components <ul><li>The major costs to a utility can be separated into three components. These include customer costs, energy/ commodity costs, and demand costs. </li></ul><ul><li>Customer Costs </li></ul><ul><li>Customer costs are those costs incurred in the connection between customer and utility. </li></ul><ul><li>These costs include the operating and capital costs associated with metering (original cost and on-going meter-reading costs), billing, and maintenance of service connections. </li></ul>
  9. 9. <ul><li>Energy/Commodity Costs </li></ul><ul><li>Energy and commodity costs consist of costs that vary with changes in consumption of kilowatt hours (kWh) of electricity. </li></ul><ul><li>These are the capital and operating costs that change only with the consumption of energy, such as fuel costs and production supplies. </li></ul><ul><li>They are not affected by the number of customers or overall system demand. </li></ul>
  10. 10. <ul><li>Demand Costs </li></ul><ul><li>Electric utilities must be able to meet the peak demand, the period when the greatest number of customers are simultaneously using service. </li></ul><ul><li>In either case, the utility will need to generate or purchase enough power to cover its firm customers’ needs at all times. </li></ul><ul><li>Demand- related costs are dependent upon overall system Requirements. </li></ul><ul><li>Demand costs can be allocated in many different ways, but utilities tend to allocate on-peak load. Included in these costs are the capital and operating costs for production, transmission that vary with demand requirements. </li></ul>
  11. 11. Allocation of Costs <ul><li>Once all costs are identified, the utility must decide how to allocate these costs to its various customer classes. </li></ul><ul><li>How much of each cost component is directly attributable to serving a residential, a lighting, or a manufacturing customer? </li></ul><ul><li>In answer to this question, each utility performs a cost-of-service study to devise a set of allocation factors that will allow them to equitably divide these costs to the various users. </li></ul><ul><li>After the costs are allocated, the utility devises a rate structure designed to collect sufficient revenue to cover all its costs, plus a fair rate of return (currently, this is running between 10 and 14% of the owners’ equity.) </li></ul>
  12. 12. RATE STRUCTURES <ul><li>1. Basic Rate Structure </li></ul><ul><li>The rate tariff structure generally follows the major cost component structure. The rates themselves usually consist of a customer charge, an energy charge, and a demand charge. </li></ul><ul><li>Each type of charge may consist of several individual charges and may be varied by the time or season of use. </li></ul><ul><li>Customer Charge </li></ul><ul><li>This is generally a flat fee per customer. </li></ul><ul><li>Some utilities base the customer charge to large industrial customers on the level of maximum annual use. </li></ul>
  13. 13. <ul><li>Energy Charge </li></ul><ul><li>This is a charge for the use of energy, and is measured in rupees per kilowatt-hour for electricity. </li></ul><ul><li>The energy charge often includes a fuel adjustment factor that allows the utility to change the price allocated for fuel cost recovery on a monthly, quarterly, or annual basis without resorting to a formal rate hearing. </li></ul><ul><li>This passes the burden of variable fuel costs (either increases or decreases) directly to the consumer. </li></ul><ul><li>Energy charges are direct charges for the actual use of energy. </li></ul>
  14. 14. <ul><li>Demand Charge </li></ul><ul><li>The demand charge is usually not applied to residential or small commercial customers, though it is not always limited to large users. </li></ul><ul><li>The customer’s demand is generally measured with a demand meter that registers the maximum demand or maximum average demand in any 15-, 30-, or 60-minute period in the billing month. </li></ul><ul><li>For customers who do not have a demand meter, an approximation may be made based on the number of kilowatt hours consumed. </li></ul><ul><li>Another type of demand charge that may be included is a reactive power factor charge; a charge for kilovolt amp reactive demand (kVAR). </li></ul><ul><li>This is a method used to charge for the power lost due to a mismatch between the line and load impedance. Where the power-factor charge is significant, corrective action can be taken, for example by adding capacitance to electric motors. </li></ul>
  15. 15. <ul><li>2. Variations </li></ul><ul><li>Utilities use a number of methods to tailor their rates to the needs of their customers. </li></ul><ul><li>Some of the different structures used to accomplish this include: seasonal pricing; block pricing; riders; discounts; and innovative rates. </li></ul><ul><li>Seasonal Pricing </li></ul><ul><li>Costs usually vary by season for most utilities. </li></ul><ul><li>These variations may be reflected in their rates through different demand and energy charges in the winter and summer. </li></ul><ul><li>When electric utilities have a seasonal variation in their charges, usually the summer rates are higher than the winter rates, due to high air conditioning use. </li></ul>
  16. 16. <ul><li>Block Pricing </li></ul><ul><li>Energy and demand charges may be structured in one of three ways: </li></ul><ul><li>1) a declining block structure; </li></ul><ul><li>2) an inverted block structure; or </li></ul><ul><li>3) a flat rate structure. </li></ul><ul><li>An inverted block pricing structure increases the rate as the consumption increases. A declining block pricing method decreases the rate as the user’s consumption increases. </li></ul><ul><li>When a rate does not vary with consumption levels it is a “flat” structure. </li></ul>
  17. 17. <ul><li>Riders </li></ul><ul><li>A “Rider” modifies the structure of a rate based on specific qualifications of the customer. </li></ul><ul><li>For example, a customer may be on a general service rate and subscribe to a rider that reduces summer energy charges where the utility is granted physical control of the customers air conditioning load. </li></ul><ul><li>Discounts </li></ul><ul><li>The discount most often available is the voltage discount offered by electric utilities. A voltage discount provides for a reduction in the charge for energy and/or demand if the customer receives service at voltages above the standard voltage. </li></ul><ul><li>This may require the customer to install, operate and maintain the equipment necessary to reduce the line voltage to the appropriate service voltage. </li></ul>
  18. 18. <ul><li>Innovative Rates </li></ul><ul><li>Increased emphasis on integrated resource planning, demand-side management and the move to a more competitive energy marketplace has focused utility attention on innovative rates. </li></ul><ul><li>Those rates designed to change customer load use, help customers maintain or increase market share, or provide the utility with a more efficient operating arena are innovative. </li></ul><ul><li>Most rates offered today fit into the innovative category. </li></ul>
  19. 19. INNOVATIVE RATE TYPES <ul><li>Utilities have designed a variety of rate types to accomplish different goals. Some influence the customer to use more or less energy or use energy at times that are helpful to the utility. </li></ul><ul><li>Others are designed to retain or attract customers. Still others are designed to encourage efficient use of energy. </li></ul><ul><li>Time-of-Use Rates </li></ul><ul><li>Time-of-Use Rates are used for the pricing of electricity only. </li></ul><ul><li>The primary purpose of the time-of-use (TOU) rate is to send the proper pricing signals to the consumer regarding the cost of energy during specific times of the day. </li></ul><ul><li>Generally, a utility’s daytime load is higher than its nighttime load, resulting in higher daytime production costs. </li></ul><ul><li>Proper TOU price signals will encourage customers to defer energy use until costs are lower. TOU rates are usually offered as options to customers, though some utilities have mandatory TOU rates. </li></ul>
  20. 20. <ul><li>End-Use Rates </li></ul><ul><li>These rates include air-conditioning, all-electric, compressed natural gas, multi-family, space heating, thermal energy storage, vehicle fuel and water heating rates. </li></ul><ul><li>These rates are all intended to encourage customers to use energy for a specific end-use. </li></ul><ul><li>Financial Incentive Rates </li></ul><ul><li>Include rates such as residential assistance, displacement, economic development, and surplus power rates. </li></ul><ul><li>Assistance rates provide discounts to residential customers who meet specific low-income levels, are senior citizens or suffer from some physical disability. Displacement rates are offered by electric utilities to customers who are capable of generating their own electricity. </li></ul><ul><li>The price offered to these customers for utility-provided power is intended to induce the customer to “displace” its own generated electricity with utility-provided electricity </li></ul>
  21. 21. <ul><li>Interruptible Rates </li></ul><ul><li>Generally apply to commercial and industrial customers. The utilities often offer several options with respect to the customer’s ability to interrupt. </li></ul><ul><li>Prices vary based on the amount of capacity that is interruptible, the length of the interruption, and the notification time before interruption. </li></ul><ul><li>Such interruptions are generally, but not always, customer controlled. In addition, the total number of interruptions and the maximum annual hours of interruption may be limited. </li></ul>
  22. 22. CALCULATION OF A MONTHLY BILL <ul><li>Following is the basic formula used for calculating the monthly bill under a utility rate. The sum of these components will result in the monthly bill. </li></ul><ul><li>1) Customer Charge </li></ul><ul><li>Customer charge = fixed monthly charge </li></ul><ul><li>2) Energy Charge </li></ul><ul><li>Energy charge = dollars × energy use </li></ul><ul><li>Energy/Fuel Cost Adjustment = dollars × energy use </li></ul>
  23. 23. <ul><li>3) Demand Charge </li></ul><ul><li>Demand charge = dollars × demand </li></ul><ul><li>Reactive Demand Charges (electric only) = dollars × measured kilovolt-ampere reactive demand </li></ul><ul><li>4) Tax/Surcharge </li></ul><ul><li>Tax/surcharge = either sum of one or more of items 1-3 above multiplied by tax percentage, dollars × energy use, or dollars × demand </li></ul>