1 northeast public power association electric utility basics electric rates and cost of service...
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Northeast Public Power Association
Electric Utility Basics
Electric Rates and Cost of Service Studies
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What are we going to address today?
• The Supply Chain
• Annual Revenue Requirement
• Cost of Service Studies
• Electric Rate Design
• Reading an Electric Bill
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The Supply Chain
Initially, you must determine all the components of the supply chain that takes a commodity from production to the end user.
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The Supply Chain
Commodities (milk, sugar, natural gas, electricity, etc.) are very similar in that they all have a supply chain that include the following components:
Production
Operation
Maintenance
Distribution
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The Supply ChainComponents of an Electric System
Generation Transmission Distribution End User
Operation and Maintenance
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Annual Revenue Requirement
Once the supply chain components have been identified then the costs of each component needs to be determined.
“The annual revenue requirement is the amount of money necessary to operate a company in a technically reliable and financially stable manner on an annual basis.”
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Annual Revenue Requirements
For an Electric Utility
Component Cost
Customer Billing $100,000
Power Supply $15,000,000
Oper. & Maint. $6,000,000
_________
Total $21,100,000
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Annual Revenue Requirements
How do you get the money necessary to meet the annual revenue requirements to operate the electric utility?
Who do you bill?
How much do you bill?
What is it based on?
You need to perform a Cost of Service Study!
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Cost of Service Study
A Cost of Service Study is performed by an electric utility to ensure that each customer class pays their fair and equitable share of the electric utility’s revenue requirements.
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Cost of Service Study
Identify the components of the Annual Revenue Requirements
Assess Customer Base
Residential, Commercial, Industrial, Other
Customer Characteristics
Business types
Usage Patterns
Regulatory Requirements
State and Federal Rules and Regulations
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Cost of Service Study
Select the Customer Categories
• Residential• Commercial• Industrial• Other
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Cost of Service Study
Customer Categories
Residential Customer – A house, condominium, or an apartment.
Commercial Customer – Any commercial establishment (store, office, restaurant, warehouse, municipal building, etc.) engaged in a business operation.
Industrial Customer – Large energy user which is an industrial facility (factory, processing plant, cold storage, etc.) with a two or three shift operation.
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Cost of Service Study
Allocate, Allocate, Allocate!
Each customer class causes a certain amount of cost for the utility.
You have to allocate your annualrevenue requirements to thecustomer classes to ensure thateach customer class is payingtheir fair and equitable share of the annual revenue requirement.
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Cost of Service Study
Allocation of Customer Costs
Based on Number of Customers
Customer
Customer Class Customers % Billing Rev. Req.
============ ======== ==== ======= ========
Residential 10,000 66.2% $100,000 $66,200
Commercial 5,000 33.1% $100,000 $33,100
Industrial 100 .7% $100,000 $700 ______ ______ _______
Total 15,100 100.0% $100,000
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Cost of Service Study
Allocation of Power Supply Costs Based on Peak Demand Use
Peak Demand Pow. Sup. Alloc. Rev. Req.Customer Class (kW) % ($) ($)============ ======== ==== ========= ========Residential 17,500 35.0% $15,000,000 $5,250,000Commercial 15,000 30.0% $15,000,000 $4,500,000Industrial 17,500 35.0% $15,000,000 $5,250,000
_____ _____ _________Total 50,000 100.0% $15,000,000
Note: Peak demand is the highest demand of the year.
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Cost of Service Study
Allocation of Oper. & Maint. Costs Based on Energy Use
Energy Use O&M Costs. Rev. Req.Customer Class (kWh) % ($) ($)============ ========= ==== ========= =========Residential 61,320,000 30% $6,000,000 $1,800,000 Commercial 59,130,000 29% $6,000,000 $1,740,000Industrial 84,315,000 41% $6,000,000 $2,460,000 ___________ ____ _________
Total 204,765,000 100% $6,000,000
Note: Energy use is the kWh used annually by each customer class.
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Cost of Service Study
Total Allocation of Customer, Power Supply and Oper. & Maint. Costs
Customer Class Ann. Rev. Req. % ($)
============ ========= ====== Residential $7,116,200 33.7 Commercial $6,273,100 29.7 Industrial $7,710,700 36.6 __________ ____ Total $21,100,000 100.0
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Cost of Service StudyAllocation to Customer Class
Residential, 7,116,200 , 34%
Industrial, 7,710,700 , 36%
Commercial, 6,273,100 , 30%
Residential
Commercial
Industrial
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Cost of Service Study
Total Allocated Costs and Unit Cost
Tot. Cost Ann. Sales Unit CostCustomer Class ($) (kWh) ($/kWh)
============ ======== ======== =======
Residential $7,116,200 61,320,000 $.116
Commercial $6,273,100 59,130,000 $.106
Industrial $7,710,700 84,315,000 $.091
_________ __________ _____
$21,100,000 204,765,000 $.103*
* Unit Cost is Total Cost divided by Annual Sales.
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Cost of Service Study
“Electric rate design is as much art as it is science.”
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Electric Rate Design
Determine the components of the rates. Which may include the following:
Customer Charge – minimum charge – cost to produce a bill.
Demand Charge – cost of purchasing capacity for peak demand.
Energy Charge – cost of energy, operation and maintenance, return on equity, etc.
Fuel Charge – cost of the fuel to produce the kilowatt hours used by the customers.
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Reading an Electric Bill
Electric bills have many components that are used to bill costs to a customer.
Each charge is either a minimum charge or a charge based on unit costs.
Charges on an electric bill may include:
Customer Charge Monthly minimum charge for billing
Demand Charge Kilowatts X $
Energy Charge Kilowatthours X $
Fuel Charge Kilowatthours X $
Other Charges
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Residential Bill
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Summary
What did we learn today?
Components of the Supply Chain.
Determining an Annual Revenue Requirement.
What is a Cost of Service Study?
Elements of Rate Design.
How to read an Electric Bill.
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Summary
What is the Supply Chain?
“The supply chain for a commodity includes production, operation, maintenance, and distribution.”
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Summary
What is an Annual Revenue Requirement?
“The annual revenue requirement is the amount of money necessary to operate a company in a technically reliable and financially stable manner on an annual basis.”
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Summary
What is a Cost of Service Study?
A Cost of Service Study is performed by an electric utility to ensure that each customer class pays their fair and equitable share of the electric utilities revenue requirements.
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Summary
Elements of Rate Design
The electric utility must determine the components of the rates that need to be charged to the customers (customer charge, demand charge, energy charge, fuel charge, and other.)
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Summary
How to read an Electric Bill?
Electric bills can be complicated to the customer.
Explaining the components of an electric bill to customers will eliminate confusion about what they are paying for.
It also may educate the customer as to how they can save energy and lower their monthly bill.