Wow! Here it is, a quarter past October. The leaves are putting on their final act before winter sets in. The colors are dramatic and beautiful. The air in the mornings is crisp and bracing. After coffee this morning, I went outside, took a few deep breaths and got into the mood to answer the question that I've been asked many times by corporate energy managers and facility directors: [quote]"Steve, please explain my electric bill to me. What are all these different charges? And, PLEASE explain in plain English." [/quote]
Well, I can do that. The surprising answer I give starts with this phrase: "Your electric bill is most like renting a car." Let me explain and start by calling this lesson the "Watts Your Pleasure Car Rental Agency and Power Company Electric Bill Breakdown."
Believe it or not, there are some distinct similarities, and several dissimilarities, between a utility electric bill and a car rental bill.
First, a difference: Utilities are regulated monopolies. Car rental companies are not. In return for their franchised monopolies, utilities have a legislated "obligation to serve" as a partial semblance of competition. If they're asked to supply electrons to any customer, they are not allowed to say "no." This doesn't mean their service is free. No way. On the other hand, car rental companies are numerous and highly competitive, assuring consumers a market-based price. Despite the regulation differences, the bills themselves have some striking similarities.
Electric Bill vs. Car Rental
Here's a brief breakdown of a typical, four-part commercial electric bill: There are charges for demand, energy, power factor, and what I'll call "taxes and fees." Each has a different basis, but all reflect the nature of the product being paid for.
As to a rental-car bill, there is a similar breakdown: type, usage, condition, and taxes and fees.
How do they compare?
1. Demand versus Type (can be 35 percent of the total bill)
When I reserve a car, I fully expect that the one I ask for will be at the lot when I arrive. If I want an everyday Japanese or American product, that's fine because nearly every potential renter wants one too. So, many are kept around to meet that demand and are priced accordingly.
However, let's say we're a renter with a slightly less restricted budget or a special need, and we'd like to rent a convertible, an SUV or a van. If the rental company wants your business, they'll have a few of these less common vehicles around, just in case. But since they don't get rented very often, and they know you're willing to pay a premium, they cost more to rent.
This is akin to a utilities' electric bill "Demand Charge." Under their obligation to serve, utilities must have the capacity (kW) to meet customers' peak load whenever it occurs and whatever its duration. When it's not used, this capacity sits idle; just like the convertible in the rental parking lot. Thus, for occasional, even daily, use of peak capacity, the utility charges for simply having it available.
2. Energy versus Usage (about 50 percent of the total bill)
This one's easy. In both cases, we pay for the time we use what we actually rent. On your electric bill, you pay based on kilowatts per hour. Hence, you're charged for kWh. With a car, we're charged by the day, week or month.
3. Power Factor versus Condition (may be 2-5 percent of the total bill)
We know that in paying for energy or usage we're helping to offset normal wear-and-tear. Oh, and we have to assure that the energy or vehicle is returned with a full tank of gas. But, what if we incur damage in excess of what's expected? Or, heaven forbid, at more than $5.00 a gallon, with a partly-empty tank.
In the case of our electric bill, we're fortunate in that it's the nature of the service to "fill the tank" as part of the rental fee. Whatever voltage is dropped across the load served is restored and maintained by the utility within very strict limits. In the case of a rental car, I'm sure we've all had the unpleasant experience of having to pay an exorbitant amount to the rental company for "filling the tank." Ugh!
Have a little fender-bender? Did you smoke in the otherwise pristine interior of the vehicle? So very sorry, but you'll have to pay to restore the vehicle's original or as-rented condition. In the same regard, on your electric bill: is your electric load highly-inductive (as most are) to the point where the utility will have to spend otherwise saleable kWh to correct excessive reactive power consumption? Again, that's too bad because now you'll have to reimburse your utility for the power they can't otherwise sell to a customer.
4. Taxes and Fees (about 10 percent of the total bill)
Rental car: Sales tax, airport franchise fee, return fee, and just-because-we-can, yada-yada fee.
Electric Bill: Also, lots and lots of taxes and fees that are a lot more complex. Generally though, these are charges the utilities are passing to the customer via regulatory agency approval. Here are a few:
[ordered_list style="decimal"]
Franchise Fee – Paid to each governmental jurisdiction (city, town or county) for the privilege of serving that entity.
Nuclear Decommissioning Fee – You and I contribute into a reserve fund for future expense to tear down whatever nuclear plants are owned by the utility.
Public Benefits Programs – You and I contribute to this fund to pay the California Energy Commission and for the rebate programs and research they sponsor.
[/ordered_list]
And that concludes the breakdown of an electric bill. Maybe, in a future post, I'll discuss how a tariff or rate is derived. It's absolute Sominex, but, if you're interested, I'll see what I can do to spice it up.
Other posts in this series:
Energy: You Don't Know What You've Got Till It's Gone
An Alternative View of Energy
