Transcript Northeast Public Power Association

Northeast Public Power
Association
Electric Utility Basics
Electric Rates and Cost of Service
Studies
1
What are we going to address today?
• The Supply Chain
• Annual Revenue Requirement
• Cost of Service Studies
• Electric Rate Design
• Reading an Electric Bill
2
The Supply Chain
Initially, you must determine all the components
of the supply chain that takes a commodity from
production to the end user.
3
The Supply Chain
Commodities (milk, sugar, natural gas, electricity, etc.)
are very similar in that they all have a supply chain that
include the following components:
Production
Operation
Maintenance
Distribution
4
The Supply Chain
Components of an Electric System
Generation
Transmission
Distribution
End User
Operation and Maintenance
5
Annual Revenue Requirement
Once the supply chain components have been identified
then the costs of each component needs to be
determined.
“The annual revenue requirement is the amount of
money necessary to operate a company in a technically
reliable and financially stable manner on an annual
basis.”
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Annual Revenue Requirements
For an Electric Utility
Component
Customer Billing
Power Supply
Oper. & Maint.
Total
Cost
$100,000
$15,000,000
$6,000,000
_________
$21,100,000
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Annual Revenue Requirements
How do you get the money necessary to meet the
annual revenue requirements to operate the electric
utility?
Who do you bill?
How much do you bill?
What is it based on?
You need to perform
a Cost of Service Study!
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Cost of Service Study
A Cost of Service Study is performed by an electric
utility to ensure that each customer class pays their
fair and equitable share of the electric utility’s
revenue requirements.
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Cost of Service Study
Identify the components of the Annual Revenue
Requirements
Assess Customer Base
Residential, Commercial, Industrial, Other
Customer Characteristics
Business types
Usage Patterns
Regulatory Requirements
State and Federal Rules and Regulations
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Cost of Service Study
Select the Customer Categories
•
•
•
•
Residential
Commercial
Industrial
Other
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Cost of Service Study
Customer Categories
Residential Customer – A house, condominium,
or an apartment.
Commercial Customer – Any commercial establishment (store, office, restaurant, warehouse,
municipal building, etc.)
engaged in a business operation.
Industrial Customer – Large energy user which is an industrial facility
(factory, processing plant, cold storage, etc.)
with a two or three shift operation.
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Cost of Service Study
Allocate, Allocate, Allocate!
Each customer class causes a certain amount of cost for the
utility.
You have to allocate your annual
revenue requirements to the
customer classes to ensure that
each customer class is paying
their fair and equitable share
of the annual revenue requirement.
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Cost of Service Study
Allocation of Customer Costs
Based on Number of Customers
Customer
Customer Class Customers
%
Billing
============ ======== ====
=======
Residential
10,000
66.2% $100,000
Commercial
5,000
33.1% $100,000
Industrial
100
.7% $100,000
______
______
Total
15,100
100.0%
Rev. Req.
========
$66,200
$33,100
$700
_______
$100,000
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Cost of Service Study
Allocation of Power Supply Costs
Based on Peak Demand Use
Peak Demand
Customer Class
(kW)
%
============ ======== ====
Residential
17,500
35.0%
Commercial
15,000
30.0%
Industrial
17,500
35.0%
_____
_____
Total
50,000 100.0%
Pow. Sup.
($)
=========
$15,000,000
$15,000,000
$15,000,000
Alloc. Rev. Req.
($)
========
$5,250,000
$4,500,000
$5,250,000
_________
$15,000,000
Note: Peak demand is the highest demand of the year.
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Cost of Service Study
Allocation of Oper. & Maint. Costs
Based on Energy Use
Energy Use
Customer Class
(kWh)
============
=========
Residential
61,320,000
Commercial
59,130,000
Industrial
84,315,000
___________
Total
204,765,000
%
====
30%
29%
41%
____
100%
O&M Costs.
($)
=========
$6,000,000
$6,000,000
$6,000,000
Rev. Req.
($)
=========
$1,800,000
$1,740,000
$2,460,000
_________
$6,000,000
Note: Energy use is the kWh used annually by each customer class.
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Cost of Service Study
Total Allocation of Customer, Power Supply and
Oper. & Maint. Costs
Customer Class
============
Residential
Commercial
Industrial
Total
Ann. Rev. Req.
($)
=========
$7,116,200
$6,273,100
$7,710,700
__________
$21,100,000
%
======
33.7
29.7
36.6
____
100.0
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Cost of Service Study
Allocation to Customer Class
Industrial,
7,710,700 , 36%
Residential,
7,116,200 , 34%
Residential
Commercial
Industrial
Commercial,
6,273,100 , 30%
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Cost of Service Study
Total Allocated Costs and Unit Cost
Tot. Cost
Ann. Sales
Customer Class
($)
(kWh)
============
Residential
Commercial
Industrial
========
$7,116,200
$6,273,100
$7,710,700
_________
$21,100,000
========
61,320,000
59,130,000
84,315,000
__________
204,765,000
Unit Cost
($/kWh)
=======
$.116
$.106
$.091
_____
$.103*
* Unit Cost is Total Cost divided by Annual Sales.
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Cost of Service Study
“Electric rate design is as much art as it is
science.”
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Electric Rate Design
Determine the components of the rates. Which may include
the following:
Customer Charge – minimum charge – cost to produce a bill.
Demand Charge – cost of purchasing capacity for peak
demand.
Energy Charge – cost of energy, operation and maintenance,
return on equity, etc.
Fuel Charge – cost of the fuel to produce the kilowatt hours
used by the customers.
21
Reading an Electric Bill
Electric bills have many components that are used to bill costs to a
customer.
Each charge is either a minimum charge or a charge based on unit costs.
Charges on an electric bill may include:
Customer Charge
Monthly minimum charge for billing
Demand Charge
Kilowatts X $
Energy Charge
Kilowatthours X $
Fuel Charge
Kilowatthours X $
Other Charges
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Residential Bill
23
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Summary
What did we learn today?
Components of the Supply Chain.
Determining an Annual Revenue Requirement.
What is a Cost of Service Study?
Elements of Rate Design.
How to read an Electric Bill.
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Summary
What is the Supply Chain?
“The supply chain for a commodity includes
production, operation, maintenance, and
distribution.”
26
Summary
What is an Annual Revenue Requirement?
“The annual revenue requirement is the amount of
money necessary to operate a company in a technically
reliable and financially stable manner on an annual
basis.”
27
Summary
What is a Cost of Service Study?
A Cost of Service Study is performed by an electric utility
to ensure that each customer class pays their fair and
equitable share of the electric utilities revenue
requirements.
28
Summary
Elements of Rate Design
The electric utility must determine the components of the
rates that need to be charged to the customers
(customer charge, demand charge, energy charge, fuel
charge, and other.)
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Summary
How to read an Electric Bill?
Electric bills can be complicated to the customer.
Explaining the components of an electric bill to
customers will eliminate confusion about what they are
paying for.
It also may educate the customer as to how they can
save energy and lower their monthly bill.
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