By Stephanie Fetchen, Contributor
Electricity costs are a major factor in today’s business landscape — whether you are running a hospital, operating a retail store, maintain a commercial office building or managing an industrial facility. Commercial and Industrial (C&I) organizations in the U.S. spend an estimated $130 billion on electricity every year. In order to analyze and optimize electricity costs, it is essential for energy managers to be able to accurately and conveniently obtain electricity rates.
Commonly, electric rate plans have been developed with the idea of continued consumption growth, but in fact electric consumption by end user accounts is flat or declining. As usage declines, traditional pricing models are resulting in reduced revenues for utilities, and, long term, these traditional pricing models will not be sustainable. End user consumption patterns and conservation measures are changing, and these changes are resulting in modified rate structures.
Consumption trends and changing demand
Demand for utility power has been flat or declining for the last 10 years while the U.S. Gross Domestic Product (GDP) has grown as shown in Figure 1. The prime causes of this trend are increased energy efficiency and increased energy conservation particularly as the U.S. has been shifting from a manufacturing economy towards a service economy. While manufacturing tends to use high levels of energy, services tend to use lower levels of energy. In this changing service based environment, simple replacement of traditional light bulbs with LED lighting and replacing existing office equipment or appliances with more efficient models are prime examples of drivers reducing consumption. According to the US Department of Energy, energy efficient office equipment uses about half of the electricity of standard equipment, and in some cases can save as much as 75% of energy usage. Also, the widespread use of LED light bulbs could save about 348 terawatt hours by 2027.
Figure 1. Flat or Declining Electricity Sales Despite U.S. GDP Growth 1998-2017
In addition to the de-coupling of GDP with energy use, established building standards and the increasing role of distributed generation contribute heavily to declining electricity consumption. The American Society of Heating, Refrigerating and Air-Conditioning Engineers Standard 90.1 seems to be the most known standard in the building design and construction industry. This standard is used as the basis for many building code ordinances throughout the US and drives responsibility for substantial energy savings. The effectiveness of this standard, as it has progressed over time, has reportedly saved over 40% energy usage compared to 19891.
Distributed Generation is also causing a decline in energy consumption. Distributed generation, generally defined as electricity produced near the particular load it services, connects directly to the grid to offset retail sales. Increased adoption of solar photovoltaic and wind generation technologies is expected to continue well into the future which will result in declines in electricity consumption from utilities. The US Energy Information Administration projects capacity of renewable distributed generation such as solar and wind technologies to exceed 50 gigawatts before 2030.
Conservation measures and impacts on tariffs and rate schedules
As increased energy efficiency has had profound impacts on energy consumption as described above, energy conservation plays another critical role. Energy conservation can be viewed as behavioral changes to save electricity usage. Such changes might include forgoing use of energy, like setting an air conditioning unit to a higher temperature setting, or scheduling energy use for a relatively low peak/low cost time of the day rather than using it during the high peak/high cost part of the day. In terms of rate programs, there are many pricing structures that encourage energy conservation. These include time of use rates, where the rates vary throughout the day; demand response programs; and critical peak pricing structures.
Time of Use rates are charges that vary significantly depending on the time of day. Usually, Off-Peak, Mid-Peak, and On-Peak charges apply as typified from a rate schedule from California Liberty Utilities for its small general service customers (Table 1). By example, as indicated in Table 1, the total energy usage rate during the winter On-Peak hours of 5 – 10 pm is ne nearly 50% greater than that applied during the Off-Peak hours of 10 pm – 7 am.
Demand response programs are basically agreements between utilities and customers for customers to reduce load when requested for various reasons, most usually for system constraints. For example, Southern Maryland Electric Coop (SMECO) states for their Demand Response Program participants that the utility can operate on-site load control devices or call for manual operation of end-use equipment at any time at its discretion for specific purposes. These purposes can include, but are not limited to, the testing of load control devices and load response, response to local constraints, operation to reduce system peak demand, and response to regional energy market prices. In this SMECO case, a bill credit of $4.00 /kW of reduced load will be made as incentive payments to customers for demand response program participation.
Critical peak pricing (CPP) comes into effect when utilities observe or anticipate high wholesale market prices or power system emergency conditions. When this occurs, they may call CPP events during a specified time period (e.g., 3 p.m.—6 p.m. on a hot summer weekday), and during these hours the price for electricity is substantially raised. For example, Southern California Edison (SCE) may enact a CPP event because of system constraint issues like a California ISO alert, a SCE system emergency, or extreme temperatures. CPP events can be called up to 12 times per year and apply between the hours of 2 pm – 6 pm. During these periods, an extreme kWh charge of over $1.37 will be applied, incentivizing reduced consumption.
The role of the rate provider
Given the rate structure dynamics as described above, commercial and industrial power consumers and energy management service companies are faced with the tasks of researching and gathering needed electricity rate schedule information from different sources and this information can be difficult to decipher. Further, the frequency of rate changes can be high and the rate schedules tend to be complex. Given these circumstances, using a rate service is a good option for most entities.
Using its RateAcuity platform, KFR Services provides a nationwide database of rate schedules from Investor Owned Utilities, Coops and Municipal Governments. Rate information can be delivered end users through a web platform or Application Programming Interface (API).
Generally applied to smaller research projects or analyses, rate data from the web platform can be used to review reports and other information on current and historical rates. This can help illustrate monetary savings for energy efficiency projects.
Enabling the accurate analysis of trends and patterns and comparison of rate options is important for translating kW and kWh into dollars. This provides a high return on investment and a high degree of accuracy to ensure reliable data suited for multiple uses including revenue-grade tasks.
Stephanie Fetchen began her career in 1991 as a programmer at KFR Services Currently, she directs all oversight of software development activities; including program specification and design, scheduling, coding and testing. She also developed and champions the data quality program that has enabled accuracy exceeding 99.98% for product delivered to customers.