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Note 21. Electricity Pricing

The Energy Efficiency Manual provides many ways to lower your electricity costs. This Note explains the essentials of electricity pricing and explains how you can exploit the pricing structure of electricity to reduce your costs. As with income taxes, those who understand the rules may pay much less than those who do not.

There are many factors that affect electricity prices. Electricity pricing varies from one location to another, from one utility to another, and from one customer category to another. Here you will learn about the types of charges that are included in an electricity rate schedule. Each of these charges involves opportunities to reduce your electricity cost.

The electricity rate schedule starts with energy charges or commodity charges, which are charges for the energy itself. These often include a fuel surcharge. Demand charges are a major category of charges that are becoming increasingly important because they reflect the increasing generating capacity limitations of utilities. You will learn how demand charges are calculated, including ratchet charges and hour charges.

Another part of the electricity rate schedule covers electricity charges that are based on the customer’s equipment. These include power factor penalties, delivery voltage, metering charges, and other issues.