Effective January 1, 2018, all Large Commercial Customers, and any customers with Distributed Energy Resources (DER) transitioned to a billing structure utilizing demand charges. For Large Commercial Customers without DER, the implementation was phased in. For customers with DER, the implementation was effectively immediately upon activation of their DER system.
What are Demand Charges?
For most customers, the primary base rate line item on bills, the Energy Charge, is based on the volumetric calculation of total electrical consumption, in kilowatt-hours (kWh), during the billing period. Demand charges, on the other hand, are based on the highest rate at which a location consumes electricity – the amount, in kilowatts (kW), demonstrated as needed to power a premises at any given point in time. Demand dictates the required equipment, facilities, and other electrical apparatus necessary for CUC to service the location at that demand level, regardless of the amount of electricity consumed.
Monthly peak demand represents the highest recorded demand interval for a location during the billing period. Additional capacity is the highest recorded monthly peak demand for a location over the previous 24 months. Additional capacity represents the longer-term nature of a service’s demand requirements.
Why Use Demand Charges?
Using demand charges coupled with energy charges allows for a more representative reflection of the costs of servicing a location. The energy charge (variable and volumetric) is directly linked to consumption level – the more consumed, the more charged and vice versa. The demand change (relatively fixed) is directly linked to the infrastructure required to service the greatest rate of consumption required at a service location. In that manner, a lower-demand customer who consumes the same amount of kWh as a higher-demand customer will have the same energy charges on their bill, but the higher-demand customer will have higher demand charges reflecting the additional cost of infrastructure required to meet their higher demand rate.
For customers utilizing the DER Programme, demand charges appropriately reflect the cost of infrastructure to serve both the location’s short-term actual peak demand from the grid, and also the longer-term infrastructure acting as back-up, or standby, in the event that the DER system were non-operational. This billing structure avoids passing the costs of maintaining an appropriately sized infrastructure to meet the DER customer’s demonstrated short and long-term demand needs on to other customers, which would be the case in a volumetric-only billing structure due to the decreased grid-consumption by a DER customer.
Overall, the transition to the use of demand rates for select customer classes is revenue-neutral to CUC; however, the changes will impact individual customers differently. Initially, some customers may see an increase and others a decrease in their typical monthly costs, depending on the nature of their business and demand profile. Demand billing also provides customers greater control over factors related to their total billed costs for electricity service. By tracking consumption patterns and demand profiles utilizing Customer Connect, a customer is able to correlate their operational functions and consumption time-of-use behavior to their peak demand characteristics and make cost-informed choices, accordingly.
The purpose of two demand-related charges is that the facilities required to service a location may vary in the short-term (potentially due to changes a customer may make to operations to curtail demand, but also due to other external factors like seasonality). However, in order to ensure reliable service to a location’s potential (and previously demonstrated) demand, CUC must maintain the infrastructural and standby capacity to meet the service’s highest long-term demand in the event that the location might need it at any point in time thereafter.
The difference in the rates applicable to the demand charges reflects the costs of the facilities, equipment, and other apparatus CUC must have in place, whether in active use or on standby, in the short term (reserve generation capacity to meet peak and intermittent load, for example) and long term (transmission & distribution infrastructure, generation capacity to meet base load, etc.).
In the long-term, sustained changes made by a customer to reduce and flatten their monthly peak demand will, over time, lead to the reduction in their additional capacity requirement and charges commensurately. As the longer-term additional capacity requirements are reduced or flattened by multiple locations, infrastructure and demand forecasting will be modified and can lead to lower rates at the next rate review, with savings passed on to all customers through improved efficiencies and tightened reserve capacity margins.