This document discusses electricity bills and demand charges for commercial customers. It makes three main points: 1) There are three ways to lower electric costs: reduce usage, shift to off-peak times, and negotiate rates. 2) Commercial rates differ from residential in that they are based on both usage and demand. 3) Demand charges, which utilities use to make money, are based on peak usage and can significantly increase bills. Understanding demand charges is key to controlling costs.

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Understanding The Electricity Bill
1
Evan Berger
Director of Energy Solutions
CALMAC Manufacturing Corp.
Fair Lawn, NJ
December 2014
eberger@calmac.com

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Conclusions
1. There are three ways
to lower electric costs:
a) Buy fewer units of
energy.
b) Lower electricity costs
by purchasing it when
it’s cheaper, at night.
c) Negotiate a better
rate.
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Conclusions
2. Commercial Rates are Different than
Residential Rates:
a) Residential Rates are based solely on usage
(kWh)
b) Commercial Rates are based on a mixture of
usage (kWh) and Demand (peak kW).
c) In deregulated states like New Jersey, Demand
Charges are how utilities like PSE&G make money
off of their commercial and institutional customers.

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Conclusions
3. Rates and tariffs are complicated.
Why? A few possible* reasons come to mind—
a) Lawyers write them
b) Regulators dislike plain English
c) The less customers know about their electricity
bills, the more utilities and Third-Party Suppliers can
possibly* earn more money at their expense
*Note: pure speculation

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Demand Charges
Definition: any electricity charge that is assessed
on a per-kW basis
In NJ, there are two types of Demand Charges:
1. Utility Demand Charges
2. Grid Demand Charges (in New Jersey, PJM)
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Sample PSE&G Bill
If you look
for it,
Demand is
everywhere.

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Utility Demand

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Grid Demand

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The Demand Charge Effect
PSEG Large Power Service Rate
Energy (usage):
Day: $0.085/kWh
Night: $0.085/kWh
Demand: $22.00/kW/Month (4 Summer months)
How big an effect is the Demand Charge??
Energy is 60% less expensive at night
$0.085/kWh
$0.220/kWh

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Demand Charge Effect…..
Do the Math (Back of the Envelope)
Conventional Chiller System
Demand Cost /month
1000 tons x 0.8 kW/ton = 800kW
800 kW x $22.00 = $17,600/month
Energy Usage for Chiller for Month
1000 tons x 10 Hrs x 75% x 0.8 kW/ton x 22 days/month =
132,000 kWh
Approximate Cost for Demand / kWh
$17,600/132,000 kWh/month = $0.133/kWh
Therefore Daytime Energy = $0.085 + $0.133 = $0.22/kWh

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Calculating Utility Demand
Utility Demand is based off of the peak interval
(30 minutes) in a given billing period
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In this billing period (May 29 – June 28), highest 30-minute interval was
1,917kW from 3:30-4:00pm a hot Wednesday in late June

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Example: PSEG Office Building – on an LPL rate
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Line item Cost per kW kW June Demand Charge
PSEG Annual $3.60/kW 1,917 $6,901
PSEG Summer $8.56/kW 1,917 $16,409
Total PSEG Demand Charge: $23,310
In PSEG, like many utilities, there is an additional Summer charge
(June-Sept). Utility Demand Charges change month-to-month.
But that’s just half the story…
Calculating Utility Demand

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Calculating GRID Demand
Introducing the Grid – PJM Interconnection
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• PJM is the world’s largest grid, covering 13 states from the Mid-
Atlantic all the way down to North Carolina and over to Illinois
• PJM schedules the reliable flow of power from generators to
consumers – and charges customers for the service

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PJM Capacity Charges are based on a
customer’s Peak Load Contribution (PLC);
it is calculated based on the customer’s
consumption during the five highest
hours of total Grid demand (kW) during
the previous year.
These are known as the 5CPs – the five
Coincident Peak Hours
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Calculating GRID Demand

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The 5CPs almost always occur during Summer afternoons
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5CP Chart, 2009-2013
2013 2012 2011 2010 2009
July 15, 5-6pm July 5, 3-4pm June 8, 4-5pm July 6, 4-5pm Aug. 10, 4-5pm
July 16, 4-5pm July 6, 4-5pm July 19, 4-5pm July 7, 4-5pm Aug. 11, 4-5pm
July 17, 4-5pm July 16, 4-5pm July 20, 4-5pm July 23, 4-5pm Aug. 17, 4-5pm
July 18, 4-5pm July 17, 4-5pm July 21, 4-5pm Aug. 10, 4-5pm Aug. 18, 4-5pm
July 19, 2-3pm July 18, 2-3pm July 22, 2-3pm Aug. 11, 4-5pm Aug. 20, 4-5pm
Summer 2013 PJM peak load was 158 GW.
Calculating GRID Demand

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PJM Transmission Charges are based on the customer’s
“Zonal PLC” – the customer’s demand (kW) during
the highest five hours of the utility’s demand
during the previous year.
In 2013, PSEG and PJM hours were almost identical.
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Calculating GRID Demand

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PJM Demand Charges are Ratcheted
Ratcheted: Once you set the Demand kW, it
stays at that level on your bill for a full year.
Note: Some utility Demand Charges are ratcheted,
but not PSEG’s
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Calculating GRID Demand

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Demand Charge Summary
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PSEG General Power Service Rate
DEMAND
CHARGE
SUMMER
($/kW)
WINTER
($/kW)
# of
MONTHS
TOTAL
ANNUAL
PSEG Annual $3.60 $3.60 6 $21.60
PSEG Summer $8.56 4 $34.24
PJM Capacity* $6.84 $6.84 12 $82.13
PJM
Transmission*
$3.98 $3.98 12 $47.80
TOTAL $22.71/kW $14.34/kW
$186/kW,
annually
*Ratcheted
PJM charges double the customer’s sensitivity to
Demand in the Summer; and then they have to bear
that cost all throughout the Winter.

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So How does Demand Effect Electricity Bills?
Usage (kWh):
$396.99
$205.64
$253.93
$679.17
$774.89
-----------
$2,310.63
58% of bill

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So How does Demand Effect Electricity Bills?
Demand (kW):
$385.68
$715.74
$362.06
$209.60
------------
$1,673.07
42% of bill

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But this site uses off-peak cooling (ice storage)
If you add
back 35kW
to this site,
Demand
increases
to 52% of
the bill.
(about avg.)
Total bill
savings
are 16.5%.

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Third-Party Suppliers (LSE)
• Many commercial customers use a third-party supplier, like
a Hess, Direct, Constellation, etc.
• Suppliers often use a blended rate – everything combined
into one per-kWh rate.
This makes it “easier” for customers, but it obscures one of the
two ways they have to save money on their bills!
Is this an insurmountable problem? No.
• When you consult with a client, advise them to insist that
starting with their next contract, all charges, per-kW and
per-kWh, be listed out line-by-line
• Suppliers will do this, because they hate losing business.
“Ask and you shall receive.”
And if you don’t receive, ask somebody else.
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When Would you Fill-up?
Daytime
$ 3.25/gallon
Nighttime
$ 1.30/gallon

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Questions?
Evan Berger, Director of Energy Solutions
CALMAC Manufacturing Corp.
eberger@calmac.com

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APPENDIX
or, slides that were left on the cutting floor

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Conclusions
4. We have a lot more transmission structure
than we typically use
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20% of our T&D infrastructure (poles, wires, and substations) is
used only about 200 hours a year.

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Utility Load Factors* in the USA
45
50
55
60
65
70
1955 1965 1975 1985 1995 2005 2015
Year
*Load Factor = Avg. Load
Peak Load
%
Advent of Air
Conditioning

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Because we blast the A/C
during the day.
Our building cooling systems
are designed as if no one
knew the occupants were
coming!
Why have utility Load Factors
been dropping for 50 years?

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The Old, Regulated Market
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Grid
Owned and
operated by
traditional
local utility
(PSEG)

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The New Deregulated Market
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Grid
Generator /
Load Serving
Entity (LSE)
ISO Grid
Operator
(PJM)
Wires
Company
(Utility)
Customers

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Traditional Electricity Bill
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Customer
Charge
Demand
Charge
Energy
Charge
Taxes / EE
Programs
etc.
=
Total
Amount

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Deregulated Electricity Bill
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Supply
Charges
Generation
Grid
Demand
Transmission
Grid
Demand
Energy
Usage
Charges
Delivery
Charges
Service
Charge
Annual
Demand
Summer
Demand
kWh
Charges
Misc.
Benefits
Charges
LSE (Load Serving Entity uses grid
to transport energy)
Traditional utility provides delivery
Total Electricity Bill

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Time Dependent Valuation of Energy
Monday Friday
A kW saved is valued the
same for every hour of the day
A kW saved during a high-cost
peak hour is valued more
highly than a kW saved during
an off-peak hour
Flat Energy
Value
Time
Dependent
Energy Value
Energyvalue