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Understanding Commercial Electric Rates
When talking with commercial customers about their utility bill, the conversation inevitably leads to a discussion about rates. Although the rates are important, the bill is predominantly tied to the facility’s consumption, rather than the rate. Nevertheless, it is necessary to have a good understanding of the rate structure to understand how power and energy consumption affects your company’s utility bill.
In order to understand rates, one must first examine how they are designed. Electric utilities must provide power in real time, and the electric system is designed to do that.
Energy is the total amount of electricity consumed and is a function of time.
Power Usage Fluctuations
Power usage fluctuates as utility customers go through their daily routines. It’s further impacted by changes in weather. Power requirements on a mild day are much different than power requirements on very hot or very cold days.
JEA must consistently provide the power the community needs every second of every day. This is known as demand and is recorded in Kilowatts (kW). The energy consumed through the use of this power is recorded in Kilowatt-Hours (kWH). Driving a car is a useful analogy to help understand the relationship between demand and energy. When driving a car, the speed, or demand, is recorded by the speedometer. The total distance traveled by the car, as recorded by the odometer, is energy. At any given time, the speed of the car may change, but if the car is travelling, the odometer is turning. The higher the speed, the faster the odometer turns. Keep this analogy in mind for our discussion of rates and the bill later on.
Instantaneous Demand (kW)
If JEA doesn’t provide instantaneous, consistent power, customers will experience brown outs or possibly even blackouts, when the electric system can’t provide the power the community is requiring. In order to ensure consistent flow of electricity for the community, the electric grid is sized to account for demand at its highest peak. This is why demand is the primary determinant of electric rate structures. As the services demand increases, the rate structure for the facility changes at specific set points. Look at any commercial bill and you will see at least two line items in the consumption section: energy (kWH) and demand (kW).
- General Service Rate (<75kW)
The small commercial rate, also known as General Service (GS), is designed for small commercial customers that use less than 75 kW in demand. This rate is very similar to the residential rate in that you do not pay a charge for your demand. You pay an energy charge and the cost for your demand is built into the energy charge. Although you will see a metered demand on the bill, the charges are dominated by the energy used during the service period.
- General Service Demand Rate (75kW - 1000kW)
Once you use more than 75 kW in demand four times in a rolling twelve month period, you will automatically be switched to the large commercial rate, also known as General Service Demand (GSD). At this rate, you are charged for the demand the facility uses, however, your energy rate drops accordingly because you now have a demand charge. The increase in demand could be due to additional equipment installed as the business grow or it could be the result of redeploying of equipment that had been retired for some reason and is now needed again.
- General Service Large Demand Rate (>1000kW)
If the service has a demand of 1000 kW or more it will switch to the industrial rate, also known as General Service Large Demand (GSLD). The difference between GSD and GSLD is that GSLD has a higher demand rate but a lower energy rate. Also, a third player comes into the mix with industrial customers: reactive demand. Industrial customers with high demands usually have large motors and other electric equipment that build up large magnetic fields. This is the source of reactive demand. Reactive demand is read in kVAR and if the customer’s reactive demand gets too high, they will be charged at the demand rate for the excess reactive demand.
How Rates Affect the Bill
These three rate structures comprise the vast majority of JEA’s commercial customer electric bills. Think back to the car analogy. JEA meters for demand and energy, but the values are captured differently, just like with the speedometer and odometer. Every fifteen minutes, a demand reading is determined and saved. During the service period, the highest kW demanded by the facility is billed. This is called peak demand.
The Speedometer and The Odometer
Imagine for a moment the car speedometer had a red max needle attached to it and you went for a long drive. You may have been at many different speeds during your trip, but when it was over, the red needle would be sitting on the fastest speed you traveled during that trip. This speed (or demand) is what you would be charged for.
The fluctuation in demand at your facility is in a much lower range than the fluctuation of the speed in car. During a trip, the speed of a car can be anywhere from starting point to the highest speed the driver chooses and this can fluctuate depending on the number of stops during the trip. In a facility, your equipment might only be at the starting point at the beginning of the day or after equipment is restarted following a shutdown. The power drawn by your equipment will ramp up to a demand level that depends on the rating, efficiency and type of application of your equipment and will most likely remain in that range for the time the equipment is on.
Energy is like the odometer and the meter will just roll off how many kWH you used during that period. The metered demand and energy usage during the service period has the corresponding rate applied to it and that determines the charges on the bill. Why is the “peak demand” billed? Well, JEA must provide that peak power needed for your equipment to run at its highest operating demand. Remember, the electric system is built to provide demand, so it must be sized for the peak demand the community and your facility requires.
Understanding demand and energy is essential to understanding how they affect the bill. Since demand is logged every fifteen minutes, the equipment only needs to run for that long for it to affect the bill. Demand is not a function of run time; it’s a function of the power requirements of individual equipment and how much equipment is on at any given time. By understanding the concept and how your facility and equipment operates, it is possible to manage your demand to a certain extent. Once the demand is managed, then you can control the energy consumption by reducing the amount of time the equipment is running.
Other Rate Options
While the majority is best served by these standard rates, there are a few other rate options for customers.
- Time-of-Day Rate
The first is a Time-of-Day (TOD) rate. With this rate, the energy rate during peak hours is nearly twice as high as the standard rate and during off peak hours is nearly half as much. TOD rates are used by companies that operate 24/7/365 which generally have a high Load Factor or those that have operational schedules that fall predominantly during off peak hours.
- Energy-Only Rate
For GSD customers there’s also an Energy-Only rate (GSD-Optional) they can choose if their load profile is such that this rate is beneficial. The energy rate is nearly two and half times that of GSD, but they do not pay a demand charge. This rate can be beneficial to GSD customers who don’t use the facility that much during the service period, but when they do the demand can be somewhat high. These are customers with low Load Factors. Churches are a great example of GSD-Optional rate customers because the facility is not used much throughout the week so monthly energy consumption is somewhat low. However, on Sunday, when they have services, everything comes on at once so the demand is high, but only for a short period of time.
Base Charge and Fuel Charge
It is also important to know that there are two charges for energy, a base charge and a fuel charge. Fuel is a separate charge because it pays only for the fuel JEA purchases. (In all the foregoing examples, the base charge was discussed.) All customer rate classes pay for fuel at the same rate, except for Time-of-Day customers, whose fuel rate changes during peak and off peak times.
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We hope this explanation helps improve your understanding of your rates and how they correspond to your electric bill. By closely watching and tracking your demand and energy consumption, and understanding the effect equipment and operations have on consumption, you can track the impact your usage has on the size of your bill.
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