Weighted Average Cost for Representative Operating Load Profiles

The simple average price of electricity or gas for a given facility can be calculated by dividing the annual cost by the annual usage in billing units (e.g., kWh or Ccf). This yields an average cost per kWh or Ccf. However, average cost calculations provide limited and often misleading information about the actual incremental cost of a particular end-use or load profile. The weighted average cost for specific usage profiles may vary dramatically. In fact, it could be several times greater with one rate structure compared with another.

To demonstrate this important concept, a table reflecting the price of purchasing electricity under various usage profiles is presented for each of the three example rates. Each of these tables lists ten different power usage profiles that might be associated with usage of a certain device or, perhaps, the usage of an entire facility.

The individual profiles in Tables 22-1 through 22-3 show the annual usage, in kWh, for each profile, the weighted average incremental cost of a kWh, and the annual cost of consuming power under specific load profiles for a theoretical 1 kW device. Explanation of how the various profiles in Tables 22-1 through 22-3 are calculated and how they relate to various types of usage follows the three electric rate examples.

While different rate designs result in widely varied costs under different usage profiles, the weighted average cost for the baseloaded kW usually is fairly similar for a given utility's cost structure. The rate structures and costs used in these three rate examples could all realistically be offered by one utility. The baseloaded cost per kW of capacity requirement is based on continuous usage every hour of the year, with the total usage being 8,760 kWh per kW of demand. This type of usage is shown for each rate example as Profile 8. This particular profile is illustrated graphically in Figure 22-3. As shown, 1 full kWh is consumed in each of the 24 hours in each day in each of

Fig. 22-3 Rate Structure Profile 8, the Baseloaded kW.

the 12 months of the year, producing a volume of 100% of usage for one kW of demand. Hence, the terms base-loaded kW and 100% load factor are applied. A decrease in usage volume per kW of demand corresponds to a decrease in load factor. The weighted average cost per kWh for the baseloaded kW is \$0.0600 in the CONV rate, \$0.056 in the TOU rate, and \$0.056 in the RTP rate. Since the weighted average cost for baseloaded usage is close, comparison of these three rates clearly demonstrates the cost impact of rate design on various types of usage patterns.

Profile 4 in each of the rates is based on a total annual usage of only 1,400 kWh for the 1kW device. All of this usage is in the peak and shoulder rate periods during the four ratchet-setting summer months. As a result, in each of the three rates, the weighted average cost per kWh is significantly higher than the weighted average cost of the baseload usage associated with Profile 8, which also includes off-peak usage. The weighted average cost is so much higher because it is more expensive to provide power during peak periods than off-peak periods. This is reflected in the rate structures, though to varying degrees. The baseload usage profile of Profile 8 blends this high-cost peak usage with low-cost off-peak usage.

The annual usage for Profile 4 is illustrated graphically in Figure 22-4. Note that usage is only shown during the four summer months and during hours 6 through 21 of each day, which correspond to the peak and shoulder periods (6 a.m. through 9 p.m.) from Monday through Friday. Hence, this figure only represents the usage during the normal five-day workweek.

In comparison to Profile 8, which shows an annual consumption volume of 8,760 kWh, Profile 4 only shows a volume of 1,400 kWh for the same 1 kW of peak demand. As will be shown below in the computations provided in the detailed discussion of each rate profile, the load factor for Profile 4 is only 16% since only 1,400 of a possible 8,760 kWh are consumed over the course of the year.

In contrast, Profile 10 is based on a total annual usage of 6,674 kWh, with all usage in the off-peak and shoulder rate periods. As a result, in each of the rates, the weighted average cost per kWh is even lower than the weighted average cost of the baseload usage profile (Profile 8). In this case, since it is far less costly to provide electricity in the off-peak period, the result is a very low weighted average cost. The utility now has this extra capacity available, during the peak periods, that it can sell at the much higher rate to balance the sale of this low-cost usage.

The ten profiles listed in each of Tables 22-1 through 22-3 were created to match the hours in each of the rate periods specific to the TOU rate structure. To allow for a reasonable basis of comparison, the same rate periods have been imposed on the rate structure used in the RTP rate. While the RTP rate has been calibrated for this purpose, it would also be appropriate to view these rate structures with respect to their own natural rate blocks.

For example, the RTP rate has a total annual base period, or lowest cost rate block of 3,020 hours per year, while in the TOU rate there are 4,588 annual hours in the off-peak rate block. To make the RTP rate compatible with this load profile, it was assumed that the 4,588 annual hours would be composed of 3,020 hours from the base period, with the remaining 1,568 hours assigned to the intermediate, or next lowest, cost rate period. The rest of the profiles for the RTP rate were calibrated to the TOU rate structure in a similar manner.

The table (i.e. Table 22-1, 22-2, and 22-3) accompanying each rate provides a calculation of the annual electric bill that would result from each of the ten usage profiles under each of the rate structures. Following the three rate descriptions are explanations for each of the profiles.

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