What are you paying for electricity? Part I, Load Management and Demand Charges

Electric utility rates vary greatly from utility to utility and from state to state. To protect your and your company’s wallets, it is very important to understand the rates by which you are being charged for electricity. The cost of electricity is so high that some commercial and industrial companies have entire departments whose sole responsibility is to study the utility rates and make load management recommendations for saving money. The work of these departments pays for itself many times over.

Load management is changing the way a company or household operates electrical devices to save money. I am not talking about just turning off lights when not needed. Yes, that does save money. What I am talking about is operating electrical equipment during off-peak hours when the cost of electricity is cheaper. I will explain off-peak and on-peak when I get into the actual rates in part two of this series. Unlike most consumables, the cost of electricity varies with the time of day, day of the week and month of the year.

Most companies just have someone pay the bill and do not realize for what they are paying. To give you an idea of what I am talking about, I want to share a true story with you. While working in the engineering department of a large electric utility, I was often asked by the marketing department to talk to customers with technical questions. In one such occasion, I was asked to talk to a commercial customer about the company’s electric bills. The customer was questioning why the electric bills at their 20,000 square foot warehouse suddenly had doubled. At the request of the customer, the utility had already checked the accuracy of the metering.

I asked the customer if there had been any recent changes to the facility. They said they had added a mezzanine, a partial second floor, within the warehouse so they could store more material. They expected some increase in their electric bill since additional lighting was installed under the mezzanine, but they did not expect their bills to double. They had a twenty-four-hour, seven-day- per-week operation. The building was not heated or air-conditioned. They said their only electrical load was the lighting.

We walked around the facility and stepped into the elevator to go up to the mezzanine— yes, a large elevator capable of lifting a fully loaded fork truck. They had forgotten about the elevator in our discussion of new loads. Though there was a staircase to the mezzanine level, they used the elevator even for pedestrian use. I asked them about the capacity of the elevator and the frequency of use. They said they only used it about a dozen times per day. Since the elevator was only on for a few minutes each time they operated it, they could not imagine how it would increase their electric bill significantly.

I sat down with them and explained the electric rate by which they were being billed. They were being billed an energy charge for the number of kilowatt hours (kWh) of energy they consumed and a demand charge for the maximum amount of power in kilowatts (kW) they used. Demand is how much power is being used by the electrical loads at any instant in time. If you were trying to decide what size generator to purchase to supply all the power for a facility, you would have to know the maximum demand of the facility. Fortunately for the customers of most utilities, utilities do not charge for the maximum demand. They usually charge for the maximum one-hour or fifteen-minute demand. For some utilities, the maximum one-hour demand is the maximum average demand for any rolling one-hour period. Some utilities use a clock hour. In this case, a commercial company can save a lot of money, for example, if they have a compressor that has to be on half the time, they operate it from half past the hour to half past the next hour. The resulting one-hour demand for the compressor is then half of what it would be if operated randomly.

Maximum fifteen-minute demand is the maximum average demand usually for any rolling fifteen-minute period. The maximum fifteen-minute demand is usually less than the peak demand and the maximum one-hour demand is usually less than the fifteen-minute demand. If the load is constant, all three demands are the same.

In the case of the 20,000 square foot warehouse, the demand was constant prior to the addition of the elevator. With the addition of the elevator, the demand charge had gone through the roof. I found out that though the elevator was used only a few times each day, they usually operated it several times in a fifteen-minute period. The demand charge was based upon the maximum fifteen-minute demand and, therefore, it went up.

They asked what they could do to reduce the cost. Since the lifting height limit of their fork trucks would permit lifting pallets to the mezzanine level, one of my suggestions was to remove a ten-foot-wide opening in the mezzanine wall and use the fork trucks to lift pallets directly to the mezzanine level. They could use a small walk-behind fork truck to move the pallets around on the mezzanine level. If they had to stack pallets on the mezzanine, they would have to keep a regular fork truck on the mezzanine.

With this scenario, I suggested they lock the elevator controls in the off position. I received a call from the president of the company about six months later. He was very happy with the lower electric bills and he thanked me for my assistance. At that point, he felt the cost of the elevator had been a waste. He was not happy with the elevator company and the electrical contractor for not warning him of the effect the elevator would have on the electric bills.

Next time, in Part 2, I will get into the details of typical electrical rates and how you can save money with load management both at home and on the job.