RCM Exchange

Electric Rate Basics

Analyzing Electric Utility Data

Electricity use profiles 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, and dryers.

Base load includes non-weather-dependent electric loads such as lighting, fans, plug loads (like computers), and electric domestic hot water. This demand for electricity is consistent and is unaffected by variables such as seasonal weather.

Variable load is the demand for electricity that fluctuates over time, such as weather-related heating and cooling. Variable loads also include equipment that is not part of the facility's normal operations (such as electric kilns) and seasonal loads (like stadium lighting).You can 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 over $100 per month. The base charge could become important for 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 during the months of non-use. However, the reactivation charge must also be considered.

Consumption Charges

Consumption charges reflect the amount of electricity consumed. In the Northwest, rates vary from less than 1¢ to more than 6¢ 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 kWh billed at $0.0565 per kWh
  • Next 50,000 kWh billed at $0.0450 per kWh
  • More than 70,000 kWh billed at $0.0415 per kWh

Declining block rates are common for commercial customers.

An increasing block rate does the opposite. The more energy you use, the more it costs per kWh. 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 kWh going down during warmer months when electricity demand is low.

Although not yet common in the Northwest, utilities are moving toward a less expensive charge for electricity consumed during off-peak hours. For example, between 9 p.m. and 6 a.m. (off-peak hours), the rate per kWh could be 2¢ 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 in kW measured over increments of time (usually 15 or 30 minutes). Demand charges are billed for your peak 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 kW. A spike in demand will result in additional costs on the utility bill and may impact demand charges year-round. To avoid this, it is imperative to understand and minimize demand.

Off-Peak Demand Rate

Some utilities in the Northwest now offer an off-peak demand rate. For example:

  • First 50 kW: no charge
  • More than 50 kW: 63¢ per kW of billing demand per month during off-peak periods, as defined by Bonneville Power Administration (BPA)
  • $4.50 per kW of billing demand per month during peak periods, as defined by BPA

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.

Examples of a ratchet demand charges:

  • 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 (60 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 warm months, even when demand is low.

Factors That Can Increase Demand Costs

The following examples illustrate how electrical demand charges can increase. If these circumstances 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 (if the heating is electric) or afternoon cooling.

  • Turning on football field lighting if it is on the same meter as adjacent facilities during facility peak-load conditions  
  • 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 most or all heating coils
  • Starting all kitchen electric ovens simultaneously     

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 is that utilities will charge extra if a facility has a power factor problem. 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. You can install components on the facility's electrical distribution system to help correct the problem. These devices can be expensive, but they may be cost-effective if power factor charges are a significant part of the bill. Contact your utility to discuss options for correcting power factor problems.

For a more complete explanation, see Reducing Power Factor Cost.