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January 30, 2014
8 Min Read
With summer coming, electricity costs can soar as packaging companies face spiking rates as the nation's electrical grid sees peak demand for power usage. The most effective way to determine if and how electricity costs can be reduced is to analyze a packaging facility's electricity bill.
Understanding the various components of electricity bills and how they affect overall electricity
costs is incredibly important to large energy consuming companies, including many in the
energy-intensive packaging industry. Analyzing the individual cost components of a monthly electricity invoice may seem daunting task to many but with some time and effort, it definitely can be done.
Analyzing electricity bills can mean different things to different people. The most common view relates to finding mistakes made by the electric utility company that have lead to excessive costs. While utility companies do make errors, these are often a result of misinformation or simple miscalculations.
What is most important in analyzing billing data is the ability to understand the information
on the bill. The utility company has the responsibility to place a customer on an applicable rate,
while the customer is responsible for determining whether they are being served by the least expensive rate class that is applicable, which is based on a variety of factors. It is important to note that the utility company is not responsible for placing the customer on the least costly rate.
Electricity costs depend on usage
Because electricity costs depend on the usage by each customer, there are often opportunities
for savings by changing to a different rate class. To begin the process of analyzing alternate rates that may be available, there are four important pieces of information that need to be obtained from the utility company:
1. Complete rate schedule. A complete rate schedule covers all rates, terms and conditions that
were approved in a rate case. All classes of customers are addressed, including residential, commercial and industrial. Contained in this document are all data relating to customer rates, costs and terms for service. The importance of this document cannot be overemphasized because it is mandatory for an understanding of electricity costs. It is important that the complete schedule be available as it is required to compare different rates and options. A
complete rate schedule will contain the following items:
• A complete list and explanation of all customer rates available,
• A complete list of all items or riders that modify or change rate costs,
• Alternative rates may be available on a "customer request" basis for certain customer classes,
• Special local rates that may be available as the result of economic development initiatives,
• An explanation of how all cost components of utility usage are measured and applied.
2. Experimental rates. Experimental rates are not contained in complete rate schedules because they are developed on an experimental basis by utility companies and are not mandated for any customer class.
These types of rates are not available from all utilities but if they are, they can be a source
of lower electricity costs. Because these rates are developed by the utility company and are initially approved on an experimental basis, the experimental category allows the utility to
evaluate the potential for a different type of rate structure. Experimental rates are never
mandated and are used only on a customer voluntary basis.
If an experimental rate proves successful, the utility company generally includes it as an optional rate for a given customer class in the rate schedule. The final step is to change the optional rate to mandatory rate for a certain customer class in the rate schedule. Keeping up to date on experimental rates can be an advantageous way to reduce
3. Off-tariff rates. Off-tariff rates differ from both base rates and experimental rates in the way
they are developed and applied. Off-tariff rates generally are negotiated between a utility and
a specific customer. Rates of this type must be approved by the appropriate regulatory agency.
Once an off-tariff schedule is established, it may be available for any customer that
has the same usage characteristics as the customer for which the rate was originally developed.
4. Rebate programs. Many utility companies experience peak-demand deficits. This means a utility company may experience a generation capacity shortfall during periods of peak demand. To compensate for this peak-generation capacity shortfall, the utility can construct new generation plants, purchase additional electricity on the wholesale market or they can offer their customers a financial incentive to reduce demand during the utility company's peak demand period.
Many utilities offer rebate programs that encourage customers to reduce their demand needs by paying for or providing rebates for management strategies that favorably impact the
utility company's peak-demand problems.
Components of an electricity bill
The second area of investigation to reduce electricity costs is to analyze the electricity billing components themselves. There are generally at least two basic cost components on any commercial or industrial electricity bill.
By thoroughly investigating each of these items, one can determine where electricity costs are being incurred and where it would be most beneficial to spend time in reducing them. The two
basic electricity cost components are demand and usage.
Charges peak when demand spikes
Demand, as it applies to the monthly electricity billing, is defined as "the reservation of the capacity the utility has to maintain for the customer 24 hours a day, seven days a week, expressed in kilowatts (kW) or kilovolt-amperes (kVA)." There is no usage of electricity purchased in this portion of the billing, only the reservation of electricity capacity.
Peak or maximum demand charges are applied to the maximum demand for energy required by a system in a given time period. Utility companies charge a monthly fee based upon
the maximum power (expressed as kilowatts, or kW) required in a given period of time, usually either a 15- or 30-minute interval.
The peak or maximum demand charge can vary from less than $1 to more than $20 per kW per month. A control strategy to reduce these peaks can result in sizable savings. Many times a revision in how and when equipment is turned on or off is all that is needed to reduce the
monthly demand charges. In other cases, a computer-controlled energy-management system can be used to sense impending peak demands and adjust energy requirements to reduce
Document variations in demand
The following steps can assist in determining and controlling peak demand:
• Determine current peak demand and the monthly charges related to it. This information can generally be obtained from the monthly utility bill.
• Contact the utility company and request that a record of demand be provided for at least a one-month period. The purpose of this record is to document the variations in the electrical demand of the operation.
When the record of demand is received, the data can be placed in a chart that looks very similar to an electrocardiogram. It will show the peaks and valleys caused by changes in demand. When the chart is analyzed, look for repetitive peak patterns from hour to hour, day to day, or week to week.
If there are repetitive patterns, determine what is happening at those times to cause the peaks to occur, for example, the beginning of a shift, equipment testing and other obvious events. Once the information is received on the peak periods, a determination can be made as to the
corrective action to take to reduce demand.
This is not only a less costly approach, but in most cases can be done by either operations changes in equipment usage or personnel schedules. It helps to work with the utility company on this because they can provide technical insight into how to lower specific peak demand. Demand is billed in at least two different ways: Non-time-differentiated and time-of-use.
• Non-time-differentiated demand billing means that the maximum peak-demand period will be billed at a fixed rate without regard to when the demand occurs.
• Time-of-use demand billing means that the maximum peak demand period will be billed at a
variable rate depending upon what time of the day, or in some cases, what time of the year the demand occurs.
Reduce usage with efficient equipment
Usage (kWh) is a function of connected load multiplied by hours of usage; for example, one 1,000-watt piece of equipment operated for a one-hour period would result in the use of 1 kWh of electricity. In other words, 1 kWh = 1,000 watts sustained for a one-hour period of time.
Reducing usage (kWh) of electricity requires the use of more energy-efficient equipment or a
reduction of the quantity or time of operation of individual pieces of electrical equipment. Each
individual analysis for usage (kWh) reduction is unique, based upon the specifics of a given situation.
Electricity usage can often be reduced in specific areas such as mechanical, lighting and power-
distribution systems. Other items to examine include the use of utility company-sponsored rebate programs to purchase and install energy-efficient equipment.
While studying the best options for reducing usage and demand, companies must remain vigilant in tracking energy usage. The best method of tracking the basic electricity cost components is to develop or purchase an automated system to track these components.
Once a company has determined the best rates for their facilities and specific operational conditions and have investigated the basic electricity cost components on the monthly billing, they are well on their way to understanding their electricity usage and reducing their electricity costs.
Mike Corley is the president of EnRisk Partners, LLC, an energy advisory firm in Houston, TX. He can be reached at 713/970-1003 or via www.enriskpartners.com
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