Electric Rates


Electric power use is metered in two ways: on maximum use during a given time period (i.e. kilowatt demand), and on total cumulative use (kilowatt hours). Developing electric rates for a customer group is a complex process of tracking the cost of providing service, and seeking regulatory approval. The general theory is that demand charges reflect the utilities' fixed costs of providing a given level of power, and energy charges reflect the variable portion of those costs. Designers must have a good understanding of the electric rate design in their area before they can make prudent decisions about geothermal installations.

In determining demand charges, companies often use a meter that records kilowatt power use during either a 15 or 30 minute time window. The average power used during that window is used to calculate the kilowatt demand.

The peak demand used for billing purposes in any month can be:

  1. Dependent on the time of the day (i.e. on-peak versus off-peak time periods), and/or the day of the week (a weekday versus a weekend day). The metering system tracks the highest usage anytime during the previous month under the appropriate time windows. These pricing schedules are generally referred to as Time of Use (TOU) rates.
  2. A Seasonally-Differentiated demand rate. For example, the demand charge might be higher during the summer than during the winter, or vise versa.
  3. A Declining Block demand rate. This is where the demand charge up to a given level is at one price, and the charge above that level is less. For example, the demand charge might be $10 per kilowatt up to 10,000 kilowatts, then drop to $6 per kilowatt for usage above 10,000 kilowatts.
  4. An Interruptible Block demand rate. This is where the demand charge depends on whether the customer can reduce electrical demand to a given level if it is notified in advance by the utility. The price reduction often varies with the time of notice (i.e., the discount is higher if shorter notice is given). Some utilities also offer direct load control for air conditioning and water heating equipment. Under this arrangement, the utility itself can cycle this equipment on and off for brief periods.
  5. A Ratchet demand charge. In this situation, certain electric rate designs incorporate minimum billing demands based upon historical high peak demands. For example, if the peak demand for last summer was 500 kilowatts and the rate design has a 50 percent ratchet, the minimum billing would be 250 kilowatts for the following months, regardless of how low the actual demands were. Most buildings are not likely to be affected by such a ratchet since the variation from one month to another isn't that large.

In determining Energy Charges, the meter recording kilowatt power used during the 15 or 30 minute time window, also tallies total kilowatt use. This meter is read at roughly monthly intervals and total power use is billed according to applicable pricing schedules.

Electric rate schedules can be very confusing and subject to misinterpretation. Always check with your local utility company representative for assistance in this area.