Small Industrial Rate Schedules

A small industrial rate schedule is usually available for small industrial users and large commercial users. The service to these customers often becomes more complex because of the nature of the equipment used in the industry, and their consumption tends to be higher. Consequently, the billing becomes more sophisticated. Usually, the same cost categories occur as in the simpler schedules, but other categories have been added. Some of these are outlined below. Voltage level.

One degree of complexity is introduced according to what voltage level the customer needs. If the customer is willing to accept the electricity at transmission voltage levels (usually 50,000 volts or higher) and do the necessary transforming to usable levels on-site, then the utility saves considerable expense and can charge less. If the customer needs the service at a lower voltage, then the utility must install transformers and maintain them. In that case, the cost of service goes up and so does the bill.

The voltage level charge can be handled in the rate schedule in several ways. One is for the utility to offer a percentage discount on the electric bill if the customer owns its own primary transformer and accepts service at a higher voltage than it needs to run its equipment. Another is to increase the energy charge as the voltage level decreases. (This method is shown in the example in Figure 3-8.) Installing their own transformers is often a significant cost-cutting opportunity for industrial users and should be explored. Maintaining transformers is a relatively simple (though potentially dangerous) task, but the customer may also need to install standby transformers to avoid costly shutdowns. Demand billing.

Understanding industrial rate structures means understanding the concept of demand billing. Consider Figure 3-8 where energy demands on a utility are plotted against time for two hypothetical companies. Since the instantaneous demand (kW) is plotted over time, the integration of this curve (i.e., the area under the curve) is the total energy (kWh) consumed (see shaded area). Company B and Company A have the same average demand, so the total energy consumed by B equals that of A. Company B's peak demand and its average demand are the same, but Company A has a seasonal peak that is twice as high as its average demand. Because the kWh consumed by each are equal, their bills for consumption will be equal, but this seems unfair. Company B has a very flat demand structure so the utility can gear up for that level of service with high-efficiency equipment. Company A, however, requires the utility to supply about twice the capacity that company B needs but only for one short period of time during the year. This means the utility must maintain and gear up equipment which will only be needed for a short period of time. This is quite expensive, and some mechanism must be used by the utility to recover these additional costs.

Figure 3-8. Demand profiles for two hypothetical industrial firms.

To properly charge for this disproportionate use of facilities and to encourage company A to reduce its peak demand, an electric utility will usually charge industrial users for the peak demand incurred during a billing cycle, normally a month. Often a customer can achieve substantial cost reductions simply by reducing peak demand and still consuming the same amount of electricity. A good example of this would be to move the use of an electric furnace from peaking times to nonpeaking times (maybe second or third shifts). This means the same energy could be used at less cost since the demand is reduced. A peak shaving (demand control) example will be discussed in section 3-7. Ratchet clause

Many utility rate structures have a ratchet clause associated with their demand rate. To understand the purpose of the ratchet clauses, one must realize that if the utility must supply power to meet a peak load in July, it must keep that equipment on hand and maintain it for the next peak load which may not occur for another year. To charge for this cost, and to encourage customers to level their demand over the remaining months, many utilities have a ratchet clause.

A ratchet clause usually says that the billed demand for any month is a percentage (usually greater than 50%) of the highest maximum demand of the previous 11 months or the actual demand, whichever is greater. The demand is normally corrected for the power factor. For a company with a large seasonal peaking nature, this can be a real problem. A peak can be set in July during a heavy air conditioning period that the company in effect pays for a full year. The impact of ratchet clauses can be significant, but often a company never realizes this has occurred. Power factor.

Power factor is a complex subject to explain, but it can be a vitally important element in a company's electrical bill. One company the authors worked with had a power factor of 51 percent. With their billing schedule, this meant they were paying a penalty of 56.9 percent on demand billing. With the addition of power factor correction capacitors, this penalty could have been avoided or minimized.

The power factor is important because it imposes costs on a utility that are not recovered with demand and energy charges. Industrial customers are more likely to be charged for a poor power factor. They create greater power factor problems for a utility because of the equipment they use. They are also more likely to be able to correct the problem.

To understand the power factor, you must understand electric currents. The current required by induction motors, transformers, fluorescent lights, induction heating furnaces, resistance welders, etc., is made up of three types of current:

1. Power-producing current (working current or current producing real power). This is the current which is converted by the equipment into useful work, such as turning a lathe, making a weld, or pumping water. The unit of measurement of the real power produced from working current is the kilowatt (kW).

2. Magnetizing current (wattless or reactive current). This is the current which is required to produce the flux necessary for the operation of induction devices. Without magnetizing current, energy could not flow through the core of a transformer or across the air gap of an induction motor. The unit of measurement of the reactive power associated with magnetizing current is the kilovar (kVAR) or kilovoltamperes reactive.

3. Total current (current producing apparent power or total power). This is the current that is read on an ammeter in the circuit. It is made up of the vector sum of the magnetizing current and the power-producing current. The unit of measurement of apparent power associated with this total current is the kilovoltampere (kVA). Most alternating current (ac) powered loads require both kilowatts and kilovars to perform useful work.

Power factor is the ratio of actual (real) power being used in a circuit, expressed in watts or kilowatts, to the apparent power drawn from the power line, expressed in voltamperes or kilovolt-amperes. The relationship of kW, kVAR, and kVA in an electrical system can be illustrated by scaling vectors to represent the magnitude of each quantity, with the vector for kVAR at a right angle to that for kW (Figure 3-9). When these components are added vectorially, the resultant is the kVA vector. The angle between the kW and kVA vectors is known as the phase angle. The cosine of this angle is the power factor and equals kW/kVA.

kW (working current)



kVA (total current)

kVAR (reactive current)


d = phase angle = measure of net amount of inductive reactance in circuit cos d = PF = ratio of real power to apparent power kVA = ^ = JPF^(kW2 + (kVAR2

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