What Are You Paying for Electricity? Part 4, Large Commercial and Industrial Electric Rates

To protect your and your company’s wallets, it is very important to understand the rates you are being charged for electricity. In this segment, I am going to share with you and discuss in detail the large commercial and industrial electric rates of a typical utility. The example I am using is a utility that publishes their rates on the Internet. The electric rates you are being billed may vary greatly from my example. I recommend that you contact your utility to get a copy of your rate and to find out what other rates are available to you. Some of the terms I am using in this article have been previously defined and discussed in parts 1, 2 and 3 of this series.

Large General Service Rate

For our example utility, their large general service rate is for all customers that have a summer maximum demand of 300 kW or greater. This is the rate for most large department stores, office buildings and industrial customers. For our example utility, this rate has a customer charge of $159.63 per month. The energy charge for the summer months is 8.9571 cents per kWh for energy used during on-peak time and 6.3569 cents per kWh for energy used during off-peak time. The energy charge for the winter months is 9.5444 cents per kWh for energy used during on-peak time and 6.7667 cents per kWh for energy used during off-peak time. For this rate, on-peak hours are 6:00 a.m. to 10:00 p.m. Monday through Friday. During Daylight Savings Time (summer), on-peak hours are 9:00 a.m. to 10:00 p.m. Monday through Friday. Note that the on-peak hours during Daylight Savings Time (summer) are not just one hour different from the winter times. I find it odd that the energy rates are higher in the winter months than during the summer months.


For this rate, the demand charge is $26.128656 per kW in the summer months and $17.784842 per kW in the winter months. The good news is that the demand is a sixty-minute demand. The sixty-minute demand allows much more opportunity for load management. Note that this is not a clock-hour sixty-minute demand. It is a rolling sixty-minute demand. The metering looks for the maximum sixtyminute demand. Some utilities have a clock-hour sixtyminute demand. For this rate, the measured demand for any month is the greater of the maximum demand established during any sixty-minute period of the month during on-peak hours as measured by the demand meter, taken to the nearest whole kilowatt or one-third (1/3) of the maximum demand established during any sixty-minute period of the month during off-peak hours. You will recall that under the medium general service off-peak rate (detailed in part 3 of this series), the off-peak demand could be ten times the on-peak demand but the customer only paid for the on-peak demand. Under the large general service rate, if the off-peak demand exceeds three times the on-peak demand, the customer pays for it.

Table 1

For this rate, the billing demand for summer months (June through September) is the measured maximum sixty-minute demand for that month. The billing demand for winter months (October through May) is 25% of the measured maximum sixty-minute demand for that month plus 75% of the average of the billing demands for the most recent summer billing months. The customer pays all year long for the demands he hits during the summer. Reducing the summer maximum demand can seriously reduce the annual bill.

Power Factor

If the customer’s average power factor for the month, expressed to the nearest whole percent, is less than 90%, the customer is billed an additional 3 cents per kW for every percent the average is below 90%. So if the billing demand for the month is 500kW and the average power factor is 84%, the customer would be billed an additional 0.03 x (90 – 84) x 500 = $90.00 for that month. If the customer’s average power factor is greater than 90%, the customer receives a credit of 3 cents per kW for every whole percent between 90% and 100%. If the billing demand is 500kW and the average power factor is 100%, the customer would receive a credit of 0.03 x (100% – 90%) x 500 = $150.00 for that month. If you are not familiar with power factor, I suggest you see my article “Basic Electricity- Part 8” in the September/October 2005 IAEI News.

Annual Cost

Under this rate, a manufacturing company with demands and energy usage as detailed in the adjacent calculation will pay $283,151.04 each year. Note that 63% ($177,231.04) of the annual cost is demand charges.

Load Management

Particularly for this rate, it is easy to understand why the utility metering includes a computer. The metering has to keep track of the time of day and the day of the week including during power outages, changes to and from Daylight Savings Time, and leap years in order to keep track of power factor and on-peak and off-peak demand and energy. Load management systems are often just as complicated. Some utilities offer real-time metering data to large customers to assist in their load management efforts. With metering data from the utility metering, the customer does not have to install their own metering to accommodate load management. I have heard stories of customers who installed their own metering and found great discrepancies between their metering and the utility metering. The utility metering is usually much more accurate. Some companies have whole departments that deal with load management.

If you understand the electric rates you are paying and are willing to make changes, you can save a lot of money. With the large general service rate described above, delaying operation of some equipment to off-peak hours is an obvious savings. Reducing the summer on-peak demand should be the number one goal. Some customers purchase large generators to use as backup power sources to critical production areas and use the generators during peak production times to reduce the billing demand. Some customers shift production to nighttime to save on air-conditioning cost and to reduce the on-peak demand. With the cost of fuel and electricity going up, I am sure some companies will find innovative ways to beat the system.