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Electric Rates – Commercial and Industrial Facilities

Electric rates charged to commercial and industrial users are influenced by an array of factors. Many business owners and managers ask, “How can I lower my electric rate?” Understanding each component of an electric rate is an essential first step. Before we can begin to lower the amount you pay for electricity, we need to filter the uncontrollable and give attention to the factors within our control.

What factors of our electric rate are beyond our control?

The publically available electricity supply is heavily based on the economics of the generators and actions of the regulatory bodies. Since your bill is determined by free market, supply and demand, the available supply is a crucial part of unlocking the mysteries of your bill. However, since you cannot control the publically available supply, we will move on.

EPA and governmental regulations are forcing more and more coal power plants (inexpensive source of power) to come offline line every year and are replacing them with more expensive natural gas generation.

The aggregated market demand refers to how much electricity is needed (plus a safety factor) by consumers for any given time within your geographical area.

Population density or more precisely, “congestion”, drastically affects electric rates. The demand for electricity is highest in urban centers, and businesses pay more in high congestion areas (think NYC). Assuming you do not want to move the physical location of your business, this would be a practically impossible factor to control.

Locational Market Price (LMP) refers to the “pricing process that raises all wholesale power prices in a zone to a defined level, based on the cost of the most expensive source of power in that zone at a given time” (energybuyer.org). Time-of-use customers and many utility default rates use the LMP to set prices where businesses pay according to the market price when they used the power.

Electric Rates
Congestion Drives up Rates

What factors of our electric rate can we control?

Load factor refers to “how” your business uses power. Do you turn all our machines on at the same time? What percentage of time do you operate at your peak demand (MW)? It seems counter intuitive, but the more we operate at our peak, the cheaper the per unit (MWh) cost. Electric utilities and electric suppliers heavily weigh your load factor when determining how much you owe for your potential draw off the grid.

Load profile refers to “when” we use our power throughout the day and year. Keeping the kWh constant, the more power you use during off-peak hours, the better off you are. Off-peak hours are usually between 9 PM and 8 AM, Monday through Friday. Your yearly profile is also important. Do you use most of your power during the expensive summer period? If so, you will pay more.

The amount of overall power consumed is influenced by many factors. Everything in your business with an on/off switch uses power. The less you use, the less you pay. Lowering the amount of power used has a proportional impact on the electric bill. Lowering the amount of power you use does not necessarily lower your rate, but it will lower your overall bill.

What are some methods used to lower the cost of the controllable components?

Peak shaving involves reducing demand when your facility is at risk of “peaking”. Since electric bills use your highest monthly demand as a component of your bill, the lower your monthly peak is, the better. This practice flattens your load profile and makes you a more efficient customer. Suppliers and utilities give you “credit” for this by lowering your rate.

Load shifting is exactly what it sounds like. You take a chunk of your on-peak usage and shift it to off-peak valleys. This technique also flattens your load profile.

Electric Rates
Control Your Energy Costs

Interval meters can help lower your rate in certain instances. For non-interval metered customers with great load profiles, “time of use” meters should be installed by your local utility company. If you attempt to peak shave or load shift without an interval meter, your efforts will be for naught.

Increased efficiencies can come in many forms including the installation of new lighting technologies (e.g. LEDs, CFLs), better building insulation, and investing in more efficient machines (including HVAC). Investing in these projects involves financial comparisons and calculations, such as “expected payback period”.

On-site power generation has been around for decades. The more electricity you can produce on-site, the less you will need from the grid. Of course, the economic benefits will need to be weighed. Some popular options include co-generation, solar panels, and wind turbines. Power Purchase Agreements can significantly lower the rate you pay for electricity (usually done with solar projects) and have zero capital requirements. There are pros and cons to all of these options.

Conclusion

If you are looking for ways to lower your electric rate, I would advise starting off with one method at a time. This will allow you to isolate the impact each technique has on your electric bill. If you attempt all the methods at once, you may not be able to decipher which methods are worth the effort and which ones have a minimal impact on your electric rate. There are many answers to this problem (many of which I did not cover in this article). The best advice I can give is to get assistance and advice from a qualified consultant.