# Understanding Demand / Energy Rates and Managing Your Electricity Costs. An information guide for commercial and industrial customers

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1 Understanding Demand / Energy Rates and Managing Your Electricity Costs An information guide for commercial and industrial customers

2 1 Introduction This booklet has been prepared to provide information to customers who are billed on a demand/energy rate. The information provided will help you understand the concepts of demand/energy and how you can use this information to control your electricity cost. Contents Page The electric service meter 2 Reading the kilowatt-hour dials 4 Reading the demand scale 6 The metering system multiplier 8 The rationale for demand/energy rates 10 Managing your electricity cost 14

3 2 The Electric Service Meter FIGURE 1 shows a typical combination energy and demand meter, commonly referred to as a DEMAND METER, which is used for nonresidential electric services. Figure 1 A demand meter measures two distinctly different values; ENERGY and DEMAND. To monitor your electricity usage, it will be necessary to read and record the energy dials and the demand register. 1. Energy is defined as that which does, or is capable of doing work. In the electrical industry, energy is the amount of electricity used and is usually expressed in kilowatt-hours (kwh). The electric service meter records in kwh all the electric energy passing through it. For example: A one thousand watt (1,000 watts = 1 kilowatt) electrical load operating for five hours (5 hrs) will use five thousand watt hours (5,000 Wh) of electricity or five kilowatt-hours (5 kwh).

4 2. Demand is the rate at which energy is delivered to an electrical load. In the electrical industry, demand is expressed in either kw or kilovoltamperes (kva). Maximum or peak demand refers to the maximum rate at which electric energy is drawn through the meter during a period of time. For example: 3 Electric Heat 10.0 kw Water Heater 4.5 kw Lighting 3.0 kw Cooking 15.0 kw 32.5 kw If all of the above were operating at the same time, the demand would be 32.5 kw. The relationship of demand to energy usage (kwh) is that if the 32.5 kw of demand were in constant operation for ten hours, the amount of energy used would be: 32.5 kw x 10 hours = 325 kwh. The electric service meter is an essential part of providing electric service and is manufactured to rigid standards of accuracy as required by the Electricity & Gas Inspection Act of Canada. All meters are tested for accuracy by the manufacturer before shipment. Upon receipt they are tested and sealed in accordance with the regulations of the Federal Department of Consumer and Corporate Affairs before being placed on your electric service. The meters are also retested for accuracy at regular intervals which vary depending on the meter type.

5 4 Reading The Kilowatt-Hour Dials An electric current passing through the meter causes a measuring disk to rotate at a speed proportional to the amount of energy being used. This measurement is transferred through a series of gears to the pointers on the energy dials of the meter. By reading the energy dials on the meter you can determine how much energy (kwh) you have used. Figure 2 In Figures 2 and 3 there are four numbered dials. Each pointer rotates in an opposite direction to the one adjacent to it and the numbers on the dials are in sequence for the direction in which each pointer rotates. The dial pointer on the right (dial 1) rotates clockwise, dial 2 counter clockwise, dial 3 clockwise, etc. As each pointer completes a full revolution, the pointer on the dial to its immediate left will rotate 1/10 of a revolution, i.e. 0 to 1, or 7 to 8 on the dial, similar to the odometer in an automobile.

6 The energy dials of an electric meter are usually read from right to left and the numbers are recorded in the same order. When the pointer is between two numbers, the smaller number is recorded. 5 Figure 3 The number of kilowatt-hours used during a given period can be determined by obtaining the difference between the dial readings at the beginning and the end of the period. This is similar to determining the number of kilometres driven in your car during a given period by obtaining the difference between the odometer readings at the beginning and the end of that period. For example: If the meter reading shown in Figure 2 (4641) was the reading recorded last month and the reading shown in Figure 3 (7831) is this month's reading, the kilowatt-hour usage for this month's billing would be: = 3190 kwh.

7 6 Reading The Demand Scale Figure 4 The demand scale shown in Figure 4 has two pointers, one black and one red. The red pointer is controlled by a thermal coil. As electricity passes through the meter, the coil heats up, expands and moves the red pointer up the scale. As the red pointer moves up the scale, it pushes the black pointer up the scale. When the amount of electricity passing through the meter is reduced, the coil cools, contracts and the red pointer moves back down the scale. The black pointer remains stationary indicating the peak demand supplied to the service during the period.

8 This heating and cooling of the thermal coil does not happen instantaneously. Approximately 25% of the actual demand is recorded after one minute, 50% after five minutes, 90% after fifteen minutes and 99% after thirty minutes. The peak demand indicated by the black pointer is recorded by the meter reader each month and the black pointer is manually reset to the red pointer. The reading recorded by the meter reader is multiplied by the metering system multiplier, described in the next section, and divided by 1,000 to determine the peak (kw or kwa) demand placed on the electrical system during the billing period. It is important to remember that the red hand indicates the present demand on your electrical system, while the black hand indicates the peak or maximum demand used since our last meter reading was taken. Your billing demand is the peak demand recorded during the billing period. Solid state demand/energy meters are becoming more popular and are now the standard for all new demand/energy meters purchased. These meters record the average demand over fifteen minute intervals and provide a digital readout instead of using pointers or dials. This is similar to the changes that have already occurred with most new clocks, thermostats and gas pump registers, as well as speedometers and odometers in automobiles. 7 FIGURE 5

9 8 The Metering System Multiplier Most demand meters have an internal multiplier. In other words, the energy dials of the meter only register a percentage of the actual energy used. To determine the actual usage on the demand meter, the registered usage must be multiplied by the meter multiplier which is shown on the meter face. For example, although the actual distance between two cities may be 500 kilometres, it would be represented by only 25 millimeters on a map. The meter multiplier is similar to a map scale in that it relates to the meter's scaled down reading of the actual consumption. As well as the internal multiplier, many meters also have an external multiplier where the actual current and voltage on the electric service are too large to be registered by the meter. Current and voltage transformers are used to reduce the current and voltage before it enters the meter. Transformer ratios are then used to determine the external multiplier. Therefore on many demand meters the metering system multiplier to be used on the registered energy usage and demand is a combination of the internal and external multipliers. For example:

10 The metering system multiplier on a 600 volt, 400 amp electric service using a demand meter with an internal multiplier of two, current transformers with a ratio of 400/5 and voltage transformers with a ratio of 600/120, as illustrated in Figure 6, would be as follows: Metering = Internal Mult. x External Mult. System = 2 x (( 400 / 5) x (600 / 120)) Multiplier = 2 x (80 x 5) = 2 x 400 = Figure 6 The metering system multiplier applicable to your electric service is shown on your electric service bill.

11 10 Rationale For Demand/Energy Rates The rationale for the application of demand/energy rates to general service (i.e. non-residential) customers lies in the nature of the costs incurred on an electric utility system and the electrical load characteristics of such customers. Electric utility costs are made up of three components. These components are usually referred to as: 1. Customer costs: These are the costs of connecting customers to the system and maintaining their service. Included would be a portion of the distribution system costs, plus the cost of service drops and meters, as well as the cost of meter reading, billing and customer accounting. Customer costs are related to the number of customers served. 2. Capacity costs: These are most of the costs associated with the provision of generation, transmission and distribution facilities required to serve the customers' loads. Since the system must have the capacity to meet customers' electrical needs the instant service is required, capacity costs are related to the peak load to be supplied even though the peak may only be required for a short period of time. 3. Energy costs: These are the costs associated with the actual generation of electricity (kilowatt-hours). Included is the fuel costs associated with generation of electricity, plus a portion of the generation and transmission facilities costs.

12 The importance of having separate demand and energy charges for customers whose load characteristics vary widely is shown in the following example: 11 Consider two customers: Customer A has a load (demand) of 80 kilowatts for 50 hours and consumes 4,000 kilowatt-hours. Customer B has a load (demand) of 20 kilowatts for 200 hours and consumes 4,000 kilowatt-hours. Both use exactly the same number of kilowatt-hours during the billing period, however the utility must provide a system capacity of only 20 kilowatts for Customer B, while it must supply 80 kilowatts of capacity for Customer A. Customer A

13 12 Customer B Assuming for this example, the Company's cost per kilowatt of system capacity is \$5.00 and the energy cost is \$0.05 per kilowatt-hour. The utilities average cost per kilowatt-hour to supply Customer A is \$0.15, while the average cost per kilowatthour to supply Customer B is \$ Customer A Capacity Costs \$5 = \$400 Energy Costs 4,000 \$0.05 = \$200 Total Costs \$400 + \$200 = \$600 Costs/kWh \$600/4,000kWh = \$0.15 Customer B Capacity Costs \$5 = \$100 Energy Costs 4,000 \$0.05 = \$200 Total Costs \$100 + \$200 = \$300 Costs/kWh \$300/4,000kWh = \$0.075

14 Customer A & B Avg. Cost/kWh (\$600 + \$300)/8,000 kwh = \$ If both customers were billed only on the basis of the average cost of \$ per kilowatt-hour with no demand charge, Customer B would be paying more than the cost of supply, thereby subsidizing the electricity cost for Customer A. By having separate demand (capacity) and energy charges, the rate to these customers more fairly reflects the cost of serving each. In theory all customers should have separate demand and energy charges. However, demand metering is much more costly and experience has shown that residential customers have similar load characteristics. Small general service customers are also quite similar to one another. Therefore the demand and energy components are combined for such customers and the resulting rate consists of a Basic Customer Charge and a Kilowatt-Hour Charge. The load characteristics of general service customers with demands over 10 kw vary widely, therefore they are billed on the demand/energy rate with separate Customer, Demand (kw or kva), and Energy (kwh) charges. 13

15 14 Managing Your Electricity Costs For customers billed on Demand/Energy Rates, the opportunity for reducing electricity cost goes beyond just using less electricity. To determine if electricity cost savings are possible, the following questions must be answered: 1. How much electricity is currently being used (monthly kwh usage and kw or kva demands)? 2. How much are you paying for it? 3. When and where is the energy being used? Items one and two can be answered using information from your electricity bills. Your 12 month account information can be viewed online or to request a copy to be ed or mailed to you, contact Newfoundland Power. To answer question three, you will have to determine when and where electricity is being used over a typical 24-hour period. Simply record the demand on an hourly basis. That means reading the red hand by identifying where it points on the demand scale of an analog meter or reading the demand numbers in a digital meter display. Record these readings and also record which equipment is operating at the time when the readings are done. Figure 7 shows a typical daily load profile.

16 15 Figure 7 In this example, equipment begins operating at 6:00 a.m. More equipment continues to be turned on until a peak is reached at 11:00 a.m. The peak falls off significantly at 12:00, possibly due to lunch break. Equipment is turned on again after lunch till a peak is reached at 2:00 p.m. At 4:00 p.m. a significant reduction in demand occurs, probably closing time, and the demand remains fairly constant with a base load of heating, ventilation and lighting loads operating until start-up for the next day. For most customers billed on demand/energy rates, the use of an automated or manual system to limit the amount of electrical equipment permitted to be in operation at the same time will reduce the billing demand, improve the load factor (LF), and reduce electricity costs. Load factor, expressed as a percent, shows the relationship between what was actually used and what could have been used during the billing period, if the peak demand was used for the full time. If peak demand had been used for the full billing period, the load factor would be 100%.

17 This is the most effective use of the power and has the lowest cost per kwh. To determine the load factor, you can use the following formula: Total kwh for the billing period (Peak Demand X # of Days X 24 Hours) EXAMPLE: Total kwh = 18,000 kwh Demand = 50 kw # Of Days = 30 Hours/Day = 24 18,000 kwh = (50 kw X 30 Days X 24 Hours) = 18,000 kwh 36,000 kwh = 0.50 = 50% In this example, the Load Factor is 50% showing that, on average, the peak demand was fully used for 12 hours a day for 30 days. One of the simplest ways of improving load factor is to shave the peaks, as illustrated in Figure 8 and Figure 9. Shaving means having a portion of the electrical load now operating at peak times of the day shifted to non-peak times. For example, instead of operating ten machines at 11:00 a.m., it would be advantageous to have two operating at 10:00 a.m., six at 11:00 a.m. and two at 1:00 p.m. All machines are still operating but not at the same time. 16

18 17 Figure 8 Figure 9 shows the daily load profile after the peaks have been shaved. The dark shaded peak area in Figure 8 has been shaved and relocated in Figure 9. Figure 9

19 On electric services metered in kva, where much of the load consists of fluorescent lighting, induction motors and transformers, the installation of power factor correction equipment can improve the load factor and reduce electricity costs. Power Factor (PF), is the name given to the ratio of productive power measured in kilowatts (kw) to the total power measured in kilovolt-amperes (kva). Power factor is usually expressed as a percentage. In an electric service containing resistance only, such as incandescent lighting and electric heating, the power factor is 100% and kw = kva. However, on services using inductive apparatus such as fluorescent lighting, induction motors and transformers a combination of two kinds of power is used: 1. Productive power does the actual work and is expressed in kw. 2. Non-productive power does no productive work but creates the magnetic fields necessary to operate the inductive apparatus and is expressed in kilovars (kvar). The combination of these two power components is the total or apparent power expressed in kilovoltamperes (kva). The non-productive power required by electric services with inductive loads reduces the customer's system capacity and increases power costs for the utility. Therefore, on larger electric services where the peak demand recorded in the most recent twelve month period exceeds 100 kw, the billing demand is based on kva and a kva demand meter is used. 18

20 If you are billed on one of our kva based rates and much of your electrical load is inductive, we can measure the power factor on your service. However, since the power factor will vary depending on the loads in operation on your service at the time of measurement, prior arrangements should be made to have the measurement taken when your electrical load is at or near the peak demand. If the power factor measurement is less than 90%, an electrical consultant should be engaged to do a detailed study of your electrical loads. The consultant will determine the best size, type and location of equipment to be installed to increase your power factor so it is as close as possible to unity or 100%. The effect of power factor improvement on electric service capacity can be seen from the following example: 19 Monthly demand at 75% power factor is 500 kva. Capacitors are installed to increase power factor to 95%. New monthly demand is: 500 x ( 75 / 95 ) = 395 kva The resulting increase in your electric service capacity for future load growth and reduced demand for billing charges is: 500 kva kva = 105 kva

21 This effect of load factor on your average cost per kilowatt-hour* can be seen in the graph below. Increasing load factor can reduce average cost per kwh. Effect of Load Factor 20 Load Factor 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% \$0.05 \$0.07 \$0.09 \$0.11 \$0.13 \$0.15 Cost per kwh * Average cost per kilowatt-hour includes energy and demand charges. Most of the information required to determine where electricity costs can be reduced, comes from the knowledge you have of your business. By walking through your premises you can determine where much of the energy and demand is being used. Take a note pad on your walk to record the electrical load rating of any motors or other electrical apparatus on the premises. The following is a starting list of items that can help reduce your energy consumption and demand: 1. Turn lights off when possible. 2. Reduce lighting levels in overlit areas. Take full advantage of natural light and use light color paints to help reflect light. 3. When replacing bulbs or fixtures, consider using more efficient lower wattage incandescent bulbs or the new energy efficient compact fluorescent bulbs. Consider installing more efficient light fixtures, (i.e watt fluorescent tube will

22 21 give approximately the same light output as 5-40 watt incandescent bulbs and a fixture with watt incandescent bulb gives twice the light of a fixture with 4-25 watt incandescent bulbs). 4. Set thermostats lower during the winter heating season (21 C or 70 F) and maintain higher settings for air conditioning during the summer cooling season (25 C or 77 F). Verify, thermostat settings with a good quality, thermometer to make sure they are adjusted to provide the desired temperature. A marker can be used to indicate the correct set-point on the thermostat. 5. Eliminate heating and air-conditioning from vestibules. The airlock effect of the vestibule itself will probably be sufficient. If employees near the entrance complain, it is more economical to install individual heating units near the employees. 6. During periods when the building is unoccupied such as at night, weekends and during shutdown periods, reduce thermostat settings for heating and increase settings for air conditioning. If the building or a portion of the building is going to be vacant for an extended period, you may be able to completely turn-off the heating and air conditioning systems. 7. Cut water heating cost where possible by reducing the temperature of the hot water, reducing the amount of hot water used and adding insulation to uninsulated or poorly insulated units. Also, fix dripping taps and take advantage of any heat that may be available from processing or other sources to supply or supplement your water heating requirements.

23 8. Use caulking and weather stripping to seal off air leakage and infiltration. Check insulation levels and install or upgrade where practical. 9. For best comfort, maintain humidity levels between 40% and 60%. 10. When purchasing new equipment, machinery and motors or replacing existing units, make sure the unit is energy efficient and properly sized for the task. Check manufacturer s efficiency ratings and specify high efficiency units when ordering. 22

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