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Know How Your Electric Utility Generates Your Bill

Commercial electric power bills may contain seven or more cost elements:

Base Charge — This is the fixed monthly charge the electric company imposes for maintaining your account.

Demand Charge — This charge is based on your highest level of power use during a month. It may be based on peak kVA use or peak kW use. If your demand charge is based on kVA, check your power factor to see if power-factor correction would help. Power companies explain that demand charges are used to pay for capital equipment; e.g., generating plants and transmission lines they need to meet customers’ power demands.

Energy Charge — This is the most straightforward item on your bill. It is the amount you pay for the power you actually use. It is based on kilowatt-hours (kWh) of electricity consumed. This is a charge for the utility’s cost of generating the power.

Special Adjustments — This category includes fuel-cost adjustments, tax assessments, and other extra charges. Fuel adjustment is the most common charge and can be quite substantial. These charges are assessed according to your energy (kWH) consumption. In California, for example, one adjustment is based on the average daily high temperature during the month.

Power Factor Penalties — In some cases, consumers are charged a penalty if their line power factor drops below a specified level. Typically, this level is 80% but may be as high as 95% in some areas.

Ratchet — This allows the power company to assess charges even if you shut down your foundry for the month. Most power companies will charge 80% of the highest monthly demand charge during the preceding 11 months as a minimum billing, whether or not you operated during the month.

Time-of-Day Rate Differentials — Power companies offer lower rates for power consumed during “off peak” periods. These are the times of the day or night when overall power demands are lowest. In addition, there are some intermediate “shoulder” periods when the kilowatt-hours are charged somewhere between the high “on peak” rate and the lower “off peak” rate. Power companies offer these rate discounts to help even out their loads throughout the day. Sometimes, these discounts are seasonally based as well.

Interruptible Rates — I n many cases, rate discounts are available if you become an interruptible power user. That is, you will allow the power company to cut or reduce your power service for a specified period when the power company needs to reduce its overall load.

Another type of interruptible rate sometimes offered will provide kilowatt-hours at a discount during regular operations. However, during periods that the supplier is short of energy, you will be offered the option of shutting down or purchasing the electricity at a substantial premium.

Excerpted from FM&T February 2007 issue, pg. 16.

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