Distribution Rate Class Assignment
Distribution rates are typically updated on a quarterly to annual basis and are subject to approval from the appropriate regulatory authority. Depending on the host utility and their breakout of distribution rates, customers can be assigned to one or more rates based on their historical energy usage characteristics. These rates usually incorporate various fixed, consumption, and demand charges which allow the utility to recoup costs associated with delivering power to consumers and secure a regulated profit margin.
Utilities are annually obligated to ensure that customers are assigned to the most advantageous distribution rate class. However, seeing how rates are usually updated more frequently than once a year, this is not always the case, and occasionally customers end up overpaying by thousands of dollars per year.
Additionally, some customers are right on the cusp of one rate class vs. the next. If the customer can take steps to proactively manage their energy consumption and demand, they would be eligible for a more advantageous distribution rate, which again could lead to thousands in annual cost savings.
Some energy analytics software platforms, like our RTIS® platform, provide an automated billing analysis feature which allows customers to ensure they are assigned to the correct distribution rate at the click of a button.
Demand Charges
Demand charges are typically billed in the form of kW or kVA demand and are separate from kWh consumption charges. Think of kW/kVA as the speedometer showing how fast you are currently traveling and kWh as the odometer showing how far you have traveled. Depending on the host utility and assigned distribution rate, these demand values are determined based on an average 15-minute to 1-hour interval, with multiple variations in between.
Demand charges are in place to allow the host utility to bill for costs associated with maintaining the infrastructure to deliver power to a facility. In other words, the more energy delivered to a facility in a short amount of time (15-minutes to 1-hour), the larger the lines and infrastructure need to be to service that facility. These costs and infrastructure need to be in place regardless of how much energy (kWh) is consumed over a given period. The most common demand charges are:
- Monthly Demand Charges: Monthly demand charges that are billed based on the peak kW or kVA demand for the given billing month.
- Ratcheting Demand Charges: Ratcheting demand charges can be viewed as a penalty charge for peak demand. Depending on the rules of the host utility and assigned distribution rate, a 1-time billed demand interval could be responsible for a year’s worth of monthly demand charges. Depending on the load factor of a facility, these charges can translate to thousands in costs associated with easily addressable interval of peak demand.
What can you do to manage demand costs? Incorporating real-time energy monitoring into your facility can help ensure that demand peaks are avoided/limited to the greatest extent possible.
Request a complimentary energy efficiency assessment to find out how Artis Energy’s RTIS® energy analytics platform can provide you with the visibility and insight to transform energy from a fixed cost into a distinct competitive advantage.