Retail power contracts created under electric deregulation often contain flat power pricing. Except for still-regulated power delivery charges, the previously separate costs of peak demand and energy consumption may now be married into one rate for all kilowatt-hours (kWh). That change offers a new way for controls vendors to shorten the paybacks for new or expanded building management systems (BMS).

Sorting Out the Charges

Regulated electric rates for nonresidential customers usually charge separately for energy and peak demand, each of which is seen as a different line item on monthly bills. The charge for peak demand is based on the highest kW draw seen by the meter each month, while a separate charge is levied for the total kWh consumption for that same time period. A proper analysis of an energy savings measure separates impact on demand costs from any reductions due to cuts in kWh, rather than using an overall average cost for power.

Unless a measure can be shown to reduce peak demand when it actually occurs, it will really only save on kWh costs. In many parts of the country, the cost of peak demand approaches half the total electric bill, so failing to cut it means that reducing kWh by 20% may cut the total electric bill by only 10%. Many building management control systems control run times and motor speeds, but do little when all systems are running at maximum output — which is when that monthly peak demand actually occurs.

Taking Advantage of a New Wrinkle

Under utility restructuring, customers receive two bills: one from their still-regulated utility for power transmission and distribution (often together called “delivery”) and a second bill from an unregulated power vendor. While the utility’s delivery bill still shows separate charges for kW and kWh, the invoice from the unregulated vendor shows a single rate combining the costs of generation (i.e., peak demand) and energy (i.e., consumption) into one flat $/ kWh, regardless of when that power is consumed.

The Good, the Bad, and the Profitable

What happens when, due to installation or upgrade of an EMS, off-peak power use is cut? In Figure 1, the peak demand of the load shape is unaffected, so the demand charges for delivery are unaffected. In the bill from the utility, the customer would see some savings related to the charges per kWh (but not per kW). What about the invoice from the unregulated vendor?

Since that vendor is charging the same for power saved on or off-peak, the value (in $/kWh) for the saved off-peak power is now higher than it would have been under the old utility tariff.

This has both positive and negative impacts.

On the plus side, each kWh of vendor electricity is saved at a rate that has the peak demand charge folded into it, even though the savings occur off-peak. That increases the total dollar savings seen by the customer, cutting the payback period for that measure (which should make the upgrade an easier sell).

On the minus side, the unregulated power vendor may not be happy because he based his flat $/kWh contract rate on a load profile that had high off-peak energy usage. Depending on the terms of his power contract, the vendor may have placed limits on how much variation can occur in kWh usage, beyond which a penalty is charged for insufficient usage.

Smart Contracting

Power contracts may allow for a variation in a customer’s monthly consumption without any penalty or change to the quoted power price. If better controls could cut a customer’s off-peak energy use, check that his power contract allows enough variation to accept the reductions from the planned upgrade without resulting in a penalty.

In one case, an hvac contractor used off-peak power price of $.05/kWh while trying to pitch improved control of off-peak fan operating hours. That price was based on the fully regulated utility tariff price for all off-peak power costs (without any contribution from peak demand charges). Under the new power contract, the correct charge was close to $.10/kWh since it had peak demand charges averaged into it. Inserting that higher price into the contractor’s savings calculation cut the payback period of the upgrade in half.

Bottom Line: the deal was quickly closed, and the extra savings (in effect) came out of the power vendor’s total revenue, not the customer’s pocket.