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Innovative Rates: Four Customers, Four Solutions

Fortnightly Magazine - January 15 1996

own generation with its higher marginal production costs and purchases additional energy from the utility (em increasing the utility's net income and reducing its own average electricity costs.

Customer D

Low-cost Power During Outages

Customer D, a pulp and paper recycling firm, needed low-cost power in the peak period when its pulping equipment experienced outages:

s Customer D operates both mechanical pulping facilities and de-inking/recycling equipment.

s Customer D recently added pulp storage facilities to take advantage of the utility's load-shifting incentives. This addition allowed shutdown of the electricity-intensive mechanical pulping equipment during expensive daytime hours.

s Customer D must produce enough pulp to keep its paper

machines running or risk losing production and market share.

s Production problems arise when outages affect pulping equipment. To maintain production in these situations, Customer D has to run pulping equipment during the peak period and incur very high monthly demand charges.

Customer D decided to opt for SP service. When pulping equipment breaks down and SP is available, Customer D runs mechanical pulping equipment during the peak period to make up for lost production and keep the paper machines running. Customer D maintains market share at a reasonable cost; the utility makes electricity sales it would not have made otherwise. In the event that SP is not available, Customer D loses production, but at least knows the utility has made its best attempt to supply low-cost power. In effect, Customer D and the utility are taking advantage of the diversity of outages on one another's equipment. The net effect has been quality customer service with benefits to both parties.

Wrapping Up

These four scenarios show that rate innovations, even when they remain cost-based, can give customers the options they need and demand in a buyer's market. They enhance a utility's reputation for customer service; no one subsidizes the reduction in the customer's bill.

The interruptible rate option designed to meet Customer A's needs actually defers the need for new facilities, and the RTP rate sends a strong signal to Customer B to limit use during the periods that contribute most to future supply requirements. Both RTP and SP encourage additional energy use when low-cost baseload

generation is on the margin, thus increasing sales. All the innovative rates discussed above also improve the utility's system load factor.

Agreeing to provide a specific service at a cost that is beneficial to all parties cannot always be reached. However, an energy services provider that is not blinded by traditional views can often invent a scenario that works to the benefit of everyone involved. Innovative rates can be a powerful tool in keeping, and gaining, customers in today's competitive electric services industry. t

Douglas Bowman is vice president of CSA Energy Consultants in Arlington, VA. He designed Ontario Hydro's real-time pricing and surplus power rate experiments, and implemented their interruptible discount demand service tariff. Mr. Bowman is currently responsible for managing and performing power-supply analyses, customer service and rate design studies, life-cycle cost analyses, and regulatory studies for CSA. He has a BS and an MS in electrical