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Many of our business customers have four separate charges on their commercial electric bill, but some of the charges do not apply to customers with a smaller business. Here is a summary of those four charges:
The basic charge covers services you use regardless of energy consumption like meter reading, billing and customer service. We base this charge on the number and type of meters you use. In some cases, a building has multiple services, each of which has a basic charge. If you don't need separate meters for tenant billing, then combining electric services into one meter will reduce the basic charge. However, you usually must pay for an electrician to rewire the electric services.
Energy and delivery charge
The energy charge relates to the energy you use. Energy is measured in kilowatt-hours (kWh). For billing purposes, rates are based on a separate delivery charge and energy charge. The delivery charge covers the cost of constructing and maintaining the electric distribution system. The energy charge is related to the cost of wholesale or generated electrical energy.
Demand is measured in kilowatts (kW). We bill business customers for the highest 15-minute period of power demand during the monthly billing period. Then we reset the meter for the next period.
To measure demand, an electric meter records the average demand over each 15-minute period and remembers the highest period for the month. A short spike - such as a power surge when a motor starts up - may create a large instantaneous power use. But this spike will barely affect demand that is averaged over 15 minutes. On the other hand, equipment that operates for longer periods at the same time as other large equipment will increase electric demand.
You can read more about demand charge and see an example below.
Reactive (power factor) power charge
Simply, a facility that runs many motors will produce a large inductive energy load called reactive power. We measure this reactive power to properly allocate power costs to each facility.
A standard Watt-hour meter does not record reactive power. When motors or other inductive loads cause a shift between voltage and current, more current must be generated and supplied to accomplish the same electrical work.
The reactive power meter measures the highest 15-minute period of reactive power in kVARs. When reactive power (kVAR) is significant in relation to true power (kW), energy providers call it low power factor. You can usually correct low power factor and reduce your reactive power charges by investing in power factor correction at your facility.
When you turn on a piece of equipment, you expect to have enough power available to operate it. Because electricity isn't stored, it must be generated as it's needed. We must have access to enough generating and distribution capacity to meet all customers' maximum power needs.
Business customers pay a separate demand charge to cover the cost of having this capacity on reserve. Residential customers pay for this capacity through a higher residential energy rate. It's a bit like owning a car. You make loan and insurance payments no matter how much you drive. Those are fixed costs. If you only drive down to the corner store once a week, the cost per mile for driving will be high.
Examples 3 and 4 show two different cases with different demand charges. Operating all three motors at the same time in Example 4 creates 15 kW of demand, or three times the demand one motor creates in Example 3. This triples the demand charge. Notice that in both cases, the energy (kWh) use and the energy charge is the same. We use approximate and rounded energy and demand rates in these examples.
If your operation allows, you can reduce demand charges by staggering motor or other equipment use so that less total equipment power is on at any given time. You can manage your demand with controls, changes in your operation or improvements to equipment efficiency.