Energy Rates, Tariffs and Supply Options
This domain tests whether you can read a utility bill, separate energy from demand and fixed charges, and evaluate supply alternatives. Exam questions often hinge on the difference between kWh and kW, the demand interval, a ratchet clause, or a power-factor penalty.
Tariff anatomy
- Energy charges are $/kWh and may be flat, tiered/block, seasonal, time-of-use, or real-time pricing.
- Demand charges are $/kW based on the highest average demand over a billing interval, commonly 15 or 30 minutes.
- A ratchet sets billed demand at a percentage of the highest peak in a prior period, such as 80% of the annual peak for the next 11 months.
- Power-factor penalties apply below a threshold, often 0.90 or 0.95; some tariffs charge for reactive power in kVAR.
- Riders and taxes cover transmission, distribution, capacity, environmental, and public-purpose programs; they can be a large share of the bill.
- Supply options include utility default service, retail choice, fixed-price blocks, block-and-index products, PPAs, on-site generation, and demand response.
Worked example
A facility peaks at 1,200 kW and pays $12/kW in demand charges. A load-shifting project reduces the monthly peak by 200 kW. Monthly demand savings = 200 × $12 = $2,400; annual savings = $28,800, assuming the reduction is sustained in every billed month. If the tariff has an 80% ratchet based on a 1,000 kW annual peak, the billed demand floor is 800 kW. Reducing a month from 850 kW to 800 kW saves nothing in billed demand because the ratchet already sets the charge at 800 kW. The reasoning: calculate savings against billed demand, not metered demand, and check every month against the ratchet floor.
Supply and risk
Fixed-price supply transfers price risk to the supplier but may be expensive in a falling market. Indexed supply tracks market prices and can be cheaper but exposes the buyer to volatility. On-site generation can reduce demand charges and provide resiliency, but standby charges, exit fees, and interconnection costs can erode savings. Demand response pays for curtailable load but must be coordinated with production and comfort.
Traps that cost marks
- Treating a 15-minute demand reading as an energy quantity.
- Ignoring ratchets, minimum bills, and power-factor thresholds.
- Comparing a blended $/kWh that includes demand charges with a pure energy price.
- Assuming a lower energy rate always lowers the total bill.
- Forgetting standby or departing-load charges when adding distributed generation.