Utility Rate Structures & Tariffs Flashcards

A warehouse installs LED lighting and reduces its monthly energy consumption by 30%, but its 15-minute peak demand remains unchanged. Under a tariff with both energy and demand charges, what is the expected impact on the total bill?

Answer: Only the energy portion of the bill decreases; demand charges remain the same

LED retrofits reduce kWh consumption and therefore the energy charge, but if the 15-minute peak is unchanged, demand charges remain unaffected.

Which of the following best describes a customer charge (also called a service or meter charge) on a utility bill?

Answer: A fixed monthly fee charged regardless of energy use to recover metering and billing costs

The customer charge is a fixed monthly fee that recovers the basic costs of maintaining service—metering, billing, and related infrastructure—independent of usage.

Under a critical peak pricing (CPP) tariff, when are the highest prices applied?

Answer: On a limited number of utility-designated critical peak events, typically 10–15 days per year during system stress periods

CPP events are called by the utility on a limited number of days when system demand is expected to be very high, triggering substantially elevated prices to encourage demand reduction.

A retail electric provider (REP) in a deregulated market offers a fixed-price product and a variable-price product. Which product exposes the customer to commodity market price volatility?

Answer: Variable-price product

A variable-price product tracks market price movements, so the customer's bill rises and falls with wholesale electricity prices.

What does the term 'load factor' measure, and why is it relevant to demand charge management?

Answer: The ratio of average demand to peak demand over a period, indicating how evenly load is spread

Load factor (average demand ÷ peak demand) shows how uniformly a customer uses energy; a higher load factor means demand charges are spread over more kWh, reducing the $/kWh cost of demand.

A utility proposes shifting more fixed costs into the volumetric (per-kWh) charge rather than the fixed customer charge. What is a likely critique of this approach from an energy efficiency perspective?

Answer: Higher volumetric rates send stronger price signals that incentivize conservation and efficiency

Higher volumetric rates actually strengthen the price signal for efficiency, making conservation more financially attractive—this is often cited as a benefit, not a critique.

A natural gas utility's tariff includes a pipeline capacity release provision. What does this allow an industrial customer to do?

Answer: Release contracted pipeline capacity back to the market during periods of low gas usage to recover credits

Pipeline capacity release allows customers holding firm capacity contracts to release unused capacity to other parties, potentially earning credits that offset their own transportation costs.