Utility Rates

1. Utility Rates Electric, Natural Gas, and Water

2. Electric Utility • Different Utility Business Models • “IOU” – Investor Owned Utility • Ultimately responsible to investors for ROI • Publicly traded on stock market • “Muni” – Municipally Owned Utility • Owned by a municipality or government entity • “Coop” – Utility Cooperative • Private, independent electric utilities, owned by the members they serve

3. Deregulation • Over the past 15 years, some states have deregulated electrical power. • This means that billing for the three basic components are separate and users may choose their own suppliers: • Generation • Transmission • Distribution

4. Electric Utility • Generation • Power plant • Base Load – Nuclear, Coal • Intermediate Load – Natural Gas, Oil • Peak Load – Natural Gas, Diesel • Renewable – Hydro, Wind, Solar • Transmission • Delivery to distribution • Distribution • Delivery to end user

5. Generation Loads • Standard Units for Electricity Commodities: • 5 x 16 (Intermediate Power) = Power and energy for Monday thru Friday for the 16 hours of the day usually starting at 0700 and ending at 2300 (on-peak) • 7 x 24 (Base load Power) = Power and energy for Monday thru Sunday for all 24 hours of the day

6. Electric Market Pressures • Increasing fuel costs • Federal climate change (Congress and EPA) • Decreasing supply margins • Increasing electric demand • Decreasing supply - aging infrastructure • Stranded infrastructure costs • Market prices set by gas fired generation costs more hours of the year

7. Deregulation • Virginia has partially deregulated its markets • NC has no plans to deregulate anytime soon • Experience has shown that most people see an increase in costs with deregulation because • Companies must compete with high cost of electricity to places like NY. • RTO/ISO cost increases • PJM Installed Capacity – • Requirement began June 1, 2007 • Adds $7.80 / MWh to 2009 total rate

8. Regional Transmission Organizations (RTO)Independent System Operators (ISO)

9. National Generation Capacity Trend

10. 5X16 Market Prices On-Peak Prices have increased by 100% since 2002

11. Price Strategy

12. Time Strategy • Based on 18 Year natural gas movement. • Best middle to late winter and summer seasons.

16. Electric Utility • Typical Customer Classes • Residential • Commercial • Industrial • Other typical classifications by Load • Small General Service • Medium General Service • Large General Service

17. Electric Utility • Less Common Billing Components • Power Factor • kW/kVA or kW/(kW + kVAR)

18. Commercial / Industrial Billing • Industrial plants can use 1,000 kW or more of power. • Power company must build capacity to meet the maximum load, even if it is used only a few hours per day  air conditioners in the summer. • Peak loads occur infrequently and must be met with expensive generation equipment (i.e., gas turbines), which increases cost to generate power.

19. Electric Utility • Typical Billing Components • Kilowatts (kW) • Rate at which energy is supplied referred to as Demand, Load or Peak • Billed at peak (usually set at intervals of 15 or 30 minutes) • Infrastructure Capacity Charge • Kilowatt-Hours (kWh) • Metered unit of Energy • Customer Charge • Billing, meter reading, admin, and other general business costs • Fuel Cost Adjustment • Transportation congestion, system peak charges or system costs, external purchases and more costly generation assets used • Projected cost of power MINUS Power cost in base rates = Fuel Adjustment

20. Demand Intervals

21. Aggregate Electricity Consumption Source: Lawrence Berkeley National Laboratory

22. Load Factor

23. Electric Rates • Demand Rate • TOU Rate • Ratchet Rate • Day-Ahead & Real-Time Pricing • Tiered Rates • Interruptible • Other

24. Industrial Electric Bill • Based on rates from Large General Service rate for a typical industrial plant energy and demand usage.

25. Time of Use Rates • It’s more expensive to make power during the day when everyone wants it rather than at night. • Time of Use rate rewards customer using power at night with lower rates at night. However, rates during the day (on-peak) and the peak demand rate is usually higher.

26. Sample Bill – TOU Rate

27. Time of Use Rate Example

28. TOU Example cont’d • Energy used in the blue shading is charged at on-peak rates ($0.03048/kWh) • Energy used in the red shading is charged at off-peak rates ($0.02548/kWh) • On-peak times are for non-holiday weekdays. Weekends / holidays are off-peak • Billing demand is determined to be maximum power used during any on-peak interval

29. Notes: • Time of use benefits companies that work seven days per week and manufacture at night. • Costs can be reduced by scheduling operations around peak periods – load shifting. • Costs can be reduced by utilizing thermal storage for HVAC system and operating equipment during off-peak periods.

30. Demand Ratchet Clause • Some older rate schedules specify that the billing demand is the maximum actual demand for the last 12 months. • It can also be either the current month’s peak demand or 80% of the contract demand. • This is so power companies can maximize investment of generation assets. Examples: • 40% of max clause to offset seasonality and mobility • Dominion A,B,C day rates

31. Tiered Rate: Example: Energy Charge – First 10,000 kWh - $0.05/kWh Next 25,000 kWh - $0.04/kWh Above 35,000 kWh - $0.03/kWh Plant using 100,000 kWh would have an energy charge of $3,450 or $0.0345/kWh

32. Other Duke Rate I • Double tiered schedule based on ratio of kWh/kW demand, then sub-tiered based on energy usage within kWh/kW tier. • These rates are difficult to compute, but generally reward companies that operate more hours and have flatter power profiles.

33. Link to NC Electric Utility Rates • http://www.progress-energy.com/aboutenergy/rates/nctariffs.asp • http://www.duke-energy.com/rates/north-carolina.asp Is there competition in Utilities business? • http://www.duke-energy.com/north-carolina-large-business/rates-bills/regional-rate-comparisons.asp

34. Conclusions • Most power companies bill energy (kWh) and demand (kW). • It is important to know your rates and where the penalty structures are within them. • Track your energy trends both by units consumed and by dollar (helps find errors).

36. Water • Compared to energy utilities, relatively inexpensive resource • This will likely change in the future • As resource becomes more scarce • Pollution • Better lab testing and detection • Regulation • Aging infrastructure • Treatment (W&WW) • Delivery (W) and transport (WW)

37. Water • Two sides to water • Customer charge often based upon meter size (like a capacity charge) • Water to your facility • Wastewater from your facility • More expensive…Why? • Combined rates (W&WW) • Most common • Singular rates (W or WW) • Irrigation rates (W only) • Sewer only rates (WW only)

38. Water • Flat rates – flat price per unit metered • Tiered rates – prices change as use more • May increase or decrease • Block rates – price changes depending upon block • Typical metering units • Gallons, cubic feet, 100 cubic feet • Metering and billing units may differ • Prime target for conversion errors

39. Facility Wastewater • Most sewer systems are gravity fed (booster stations only where needed) • Rarely metered • Usage based upon metered incoming water • Wide variations in flow present metering problems • Meters can be expensive • Metered when company buys meter in agreement with utility • Only feasible for large users where lots of water used in process