Utility Rates Electric, Natural Gas, and Water

Electric Utility Different Utility Business Models – “IOU” – Investor Owned Utility Ultimately responsible to investors for ROI Publicly traded on stock market – “Muni” – Municipally Owned Utility Owned by a municipality or government entity – “Coop” – Utility Cooperative Private, independent electric utilities, owned by the members they serve

Deregulation Over the past 15 years, some states have deregulated electrical power. This means that billing for the three basic components are separate and users may choose their own suppliers: – Generation – Transmission – Distribution

Electric Utility Generation – Power plant Base Load – Nuclear, Coal Intermediate Load – Natural Gas, Oil Peak Load – Natural Gas, Diesel Renewable – Hydro, Wind, Solar Transmission – Delivery to distribution Distribution – Delivery to end user

Generation Loads Standard Units for Electricity Commodities: – 5 x 16 (Intermediate Power) = Power and energy for Monday thru Friday for the 16 hours of the day usually starting at 0700 and ending at 2300 (on-peak) – 7 x 24 (Base load Power) = Power and energy for Monday thru Sunday for all 24 hours of the day

Electric Market Pressures Increasing fuel costs Federal climate change (Congress and EPA) Decreasing supply margins – Increasing electric demand – Decreasing supply - aging infrastructure – Stranded infrastructure costs Market prices set by gas fired generation costs more hours of the year

Deregulation Virginia has partially deregulated its markets NC has no plans to deregulate anytime soon Experience has shown that most people see an increase in costs with deregulation because – Companies must compete with high cost of electricity to places like NY. – RTO/ISO cost increases PJM Installed Capacity – – Requirement began June 1, 2007 – Adds $7.80 / MWh to 2009 total rate

Regional Transmission Organizations (RTO) Independent System Operators (ISO)

National Generation Capacity Trend

5X16 Market Prices On-Peak Prices have increased by 100% since 2002

Price Strategy

Time Strategy Based on 18 Year natural gas movement. Best middle to late winter and summer seasons.

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Electric Utility Typical Customer Classes – Residential – Commercial – Industrial Other typical classifications by Load – Small General Service – Medium General Service – Large General Service

Electric Utility Less Common Billing Components – Power Factor kW/kVA or kW/(kW + kVAR)

Commercial / Industrial Billing Industrial plants can use 1,000 kW or more of power. Power company must build capacity to meet the maximum load, even if it is used only a few hours per day  air conditioners in the summer. Peak loads occur infrequently and must be met with expensive generation equipment (i.e., gas turbines), which increases cost to generate power.

Electric Utility Typical Billing Components – Kilowatts (kW) Rate at which energy is supplied referred to as Demand, Load or Peak Billed at peak (usually set at intervals of 15 or 30 minutes) Infrastructure Capacity Charge – Kilowatt-Hours (kWh) Metered unit of Energy – Customer Charge Billing, meter reading, admin, and other general business costs – Fuel Cost Adjustment Transportation congestion, system peak charges or system costs, external purchases and more costly generation assets used Projected cost of power MINUS Power cost in base rates = Fuel Adjustment

Demand Intervals

Aggregate Electricity Consumption Source: Lawrence Berkeley National Laboratory

Load Factor LOAD FACTOR = Energy Usage (kWH) Maximum Demand (kW) x hours/period

Electric Rates Demand Rate TOU Rate Ratchet Rate Day-Ahead & Real-Time Pricing Tiered Rates Interruptible Other

Industrial Electric Bill Charge TypeUsageRateCharge Service$ Energy350,000 kWh$ $12, Demand1,000 kW$11.25$11, Taxes3% of bill$ Total$25,  Based on rates from Large General Service rate for a typical industrial plant energy and demand usage.

Time of Use Rates It’s more expensive to make power during the day when everyone wants it rather than at night. Time of Use rate rewards customer using power at night with lower rates at night. However, rates during the day (on-peak) and the peak demand rate is usually higher.

Sample Bill – TOU Rate Charge TypeUsageRateCharge Service$ On-peak Energy150,000 kWh$ $4, Off-peak Energy200,000 kWh$ $5, Demand (summer)1,000 kW$19.56$19, Taxes3% of bill$ Total$30,619.84

Time of Use Rate Example

TOU Example cont’d Energy used in the blue shading is charged at on-peak rates ($ /kWh) Energy used in the red shading is charged at off-peak rates ($ /kWh) On-peak times are for non-holiday weekdays. Weekends / holidays are off-peak Billing demand is determined to be maximum power used during any on-peak interval

Notes: Time of use benefits companies that work seven days per week and manufacture at night. Costs can be reduced by scheduling operations around peak periods – load shifting. Costs can be reduced by utilizing thermal storage for HVAC system and operating equipment during off-peak periods.

Demand Ratchet Clause Some older rate schedules specify that the billing demand is the maximum actual demand for the last 12 months. It can also be either the current month’s peak demand or 80% of the contract demand. This is so power companies can maximize investment of generation assets. Examples: – 40% of max clause to offset seasonality and mobility – Dominion A,B,C day rates

Tiered Rate: Example: Energy Charge – First 10,000 kWh-$0.05/kWh Next 25,000 kWh-$0.04/kWh Above 35,000 kWh-$0.03/kWh Plant using 100,000 kWh would have an energy charge of $3,450 or $0.0345/kWh

Other Duke Rate I Double tiered schedule based on ratio of kWh/kW demand, then sub-tiered based on energy usage within kWh/kW tier. These rates are difficult to compute, but generally reward companies that operate more hours and have flatter power profiles.

Link to NC Electric Utility Rates energy.com/aboutenergy/rates/nctariffs.asp energy.com/aboutenergy/rates/nctariffs.asp carolina.asp carolina.asp Is there competition in Utilities business? large-business/rates-bills/regional-rate- comparisons.asp large-business/rates-bills/regional-rate- comparisons.asp

Conclusions Most power companies bill energy (kWh) and demand (kW). It is important to know your rates and where the penalty structures are within them. Track your energy trends both by units consumed and by dollar (helps find errors).

Water Compared to energy utilities, relatively inexpensive resource This will likely change in the future – As resource becomes more scarce – Pollution Better lab testing and detection – Regulation – Aging infrastructure Treatment (W&WW) Delivery (W) and transport (WW)

Water Two sides to water – Customer charge often based upon meter size (like a capacity charge) – Water to your facility – Wastewater from your facility More expensive…Why? Combined rates (W&WW) – Most common Singular rates (W or WW) – Irrigation rates (W only) – Sewer only rates (WW only)

Water Flat rates – flat price per unit metered Tiered rates – prices change as use more – May increase or decrease Block rates – price changes depending upon block Typical metering units – Gallons, cubic feet, 100 cubic feet – Metering and billing units may differ Prime target for conversion errors

Facility Wastewater Most sewer systems are gravity fed (booster stations only where needed) Rarely metered – Usage based upon metered incoming water – Wide variations in flow present metering problems – Meters can be expensive Metered when company buys meter in agreement with utility – Only feasible for large users where lots of water used in process