Just what is that electric bill saying?
Utility data is complex, not understanding the components reduces your ability to reduce cost and impact
As our approach to energy management becomes more precise, one curtain that must be brought down is the electric bill. It is imperative that we understand the elements of the monthly bill and what we can and cannot impact.
Last week, I introduced the idea that you could reduce your GHG impact in deregulated electrical markets by making supply purchases from cleaner electrical generation sources. There is no capital investment; it is simply a matter of asking questions about what is available and the impact of what is available regarding the source of the supply being purchased.
So supply is one element of that electrical bill, which provides us some ability to impact our GHG impact in deregulated markets. Likewise, leveraging local utility clean energy programs and community solar in regulated markets is another option to reduce impact.
However, there are three additional elements of that bill to be aware of. The first of those are taxes and fees. While we may have some potential to impact these through lobbying, there is little to control in this area. Remain vigilant about proposed changes in your tariff and leverage associations like NAA to help provide some potential voice. Con Ed says they account for 25% to 30% of its customers’ bills.
Similarly, another component of your electrical bill is under the category of delivery charges. Delivery Costs The delivery fees cover the cost of sending your energy to your property. Depending on your utility jurisdiction, there can be several different components that make up your delivery rate.
Distribution Rate – The distribution rate is the fee that covers the actual delivery of the electricity to your door through the local power grid (or power lines). Included in this charge are fees that include the costs of metering, billing, and customer service. Even if you purchase supply separately, as in the case in deregulated states, the local utility provider typically has the right to seek to increase its distribution rate.
Transition Rate – This charge is usually a fixed amount to cover the capital expense related to building power-generating facilities. Not all states will have this rate included in the bill. Related to this in some deregulated states has been the passage of electrical restructuring acts, which allow local utilities to recover the costs they had to pay when restructuring to meet these legal requirements around deregulation.
Transmission Rate – Each energy supplier pays a specific rate to cover the cost of delivering electricity over high-voltage lines. These are the lines that transport the energy from the actual power-generating facilities to the distribution center. These rates are governed by the Federal Energy Regulatory Commission, not the individual supplier.
The remaining component of the electrical bill is around capacity and demand. These elements are not around the total amount of energy your site uses but rather about when you require it. This can represent a sizable percentage of your electrical bill, and in fact, capacity alone can represent as much as 30%.
Unlike Taxes and Fees and delivery costs, Capacity and Demand can be managed. Why might you want to do that? Let’s look at deregulated electricity. Your electrical supply contract is generally set up to include a fixed cost for capacity to cover your anticipated capacity fees. Think of that as an insurance policy; the fee covers your capacity charge if you exceed capacity. But of course, you are paying that same fee when you are not overcapacity as well. What is even more interesting is that if you are actively managing capacity or demand, the energy provider enjoys those savings you make through solid operating practices. You still pay the same fixed capacity fee.
However, you can impact this by having a pass-through capacity fee structure. In this case, the savings you generate by managing the capacity on site translate to savings back to you. The caution is to use this strategy; you need to have a strategy in place to manage capacity.
To really understand this, let’s peel back one layer. Capacity charges help cover the costs of purchasing additional electrical supply during periods of high demand. As I said above, it is basically an insurance policy to cover the cost of addressing high demand periods. The charges are based on peak hour usage costs, as established during a given year’s usage cycle. The price determined by one year’s usage figures is used to determine the following year’s capacity charges.
Understanding what a capacity charge is, how exactly is it calculated?
The capacity costs for a user’s account include two main components:
· Capacity cost per kilowatt (kW) in that utility.
· The capacity tag of the account.
These components are multiplied to figure out the kW capacity costs in a given year and then divided by the yearly kilowatt-hour (kWh) usage to determine the kWh cost.
The capacity cost is a known entity and not one you can necessarily manage, but what you can manage is the capacity tag. That tag is established through a capacity event; this is an event in which your electrical consumption is measured for a five-hour period of peak consumption. The more energy used during that capacity event, the higher your capacity tag will be set. If you do not consume as much energy during the five peak hours, you will not see any increase and could have a lower capacity tag instead, which means better pricing.
Understanding that event, however, requires knowledge of the particular utility. How are events set, when are events set, what factors are considered? It also requires coordination with the property, ensuring that you do not have abnormally high usage during that event. Managing use during the capacity event will impact your rate for the next 12 months.
There are, of course, particular strategies that can be engaged to manage capacity, which in turn allow for the procurement of energy in deregulated markets to leverage capacity pass through as a viable strategy to reduce costs.
As you can see, there is more to the energy bill than just how much was the charge? Many elements make up those charges, and partnering with an expert who understands each aspect is critical to fully managing your impact and costs.
You can help reduce the impact of the built environment by sharing this blog with your peers. Together we can impact the 39% of greenhouse gasses attributed to the built environment. It starts with awareness, and we succeed with teamwork.
Stay well!
Chris Laughman is the ThirtyNine Blog author, a blog dedicated to reducing the impact of the built environment. When not blogging, Chris is helping the real estate industry minimize energy and water impact as the Vice President of Sustainability for Conservice, the Utility Experts. Whether Multifamily, Single Family, Student Housing, Commercial, or Military, we simplify utility billing and expense management by doing it for you. Our insight into your utility consumption provides an opportunity to identify risks. Leveraging innovation and experience, we ignite solutions with tangible impacts and track performance to ensure the trendline stays laser-focused on the goal. At Conservice, we have developed a true bill-to-boardroom solution to help truly make a difference. We have before us a tremendous opportunity. Standing shoulder to shoulder, we will get this done. Contact me at claughman@conservice.com for more information.
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