UNDERSTANDING THE BILLING STRUCTURE

By Eric Gitonga

Typically, in all households, whether directly or indirectly, bills are received monthly for the consumption of various utilities. This would include bills for electricity, water and gas consumption. Both technical and non-technical personnel need to understand how the various energy rates are structured as this could aid into more energy-efficient energy consumption and possibly shifting to a different rate structure.

In this article, we will look into the electrical billing structure since it is the most complex and not as directly computed as compared to both gas and water billing rates.

The components of a typical electrical bill may include the following charges

  1. Energy charge.
  2. Demand charge.
  3. Fuel costs.
  4. Taxes.
  5. Power factor surcharges.

There are different billing structures used by the various utility companies and this include

  1. Flat rates.
  2. Block rates.
  3. Seasonal pricing.
  4. Time of use rates.

We will have a brief look into each billing structure with a look at the energy charges based on the consumption.

1. Flat rates

In this billing structure, a fixed value is used for the consumption of a unit of energy irrespective of the amount of energy used by the consumer. The computation of the energy charge is obtained by directly multiplying the consumption by the unit charge of the consumption

An example of such a billing would be $0.15 for each unit of kWh of electricity consumed. If a consumer uses 1000 kWh in a month, they are charged 1000 kWh*$0.15/kWh=$150.

2. Block rates

In this billing structure, the charge is based on the level of consumption bracket (referred to as the block) as defined by the utility company. The block rate structure may be of a declining or inclining nature. A declining block rate encourages users to consume more while an inclining structure encourages users to use as low energy as possible.

Below is a structure of a declining rate structure which encourages consumers to use more and how the typical monthly consumption could be obtained.

If a consumer uses 530 kWh during the month, the consumption amount would be computed as shown below

[$0.16*100] + [$0.14*100] + [$0.12*100] + [$0.10*(530-300)] = $65

3. Seasonal pricing

In this billing structure, two billing rates are used depending on the time of the year. These annual times can be divided into the winter and summer seasons. The rates used in this billing structure are dependent highly on the demand. In the summer there is increased cooling demand and the winter has increased heating demand. This structure can be incorporated in a flat rate, block rate structure or time of use billing rate.

4. Time of Use rates

This is the most common type of billing structure employed by utility companies. In this structure, two part time definitions are used depending on the times of the day which are categorized into the peak and off-peak hours. In Kenya, the peak is from 6 am-10 pm Monday to Friday and 8 am-2 pm on Saturdays. The off-peak hours are 10 pm-6 am Monday to Friday, 2 pm-midnight on Saturdays and holidays and 24 hours on Sundays,

However, these time values are different depending on the location of the country and the season. In some utility companies, a third category can be used to form a three-part definition with the peak, off-peak and shoulder peak which is the transitional region between the peak and off-peak regions and vice versa. The off-peak rate is usually lower than the peak rate.

It is also the structure of the greatest interest to energy professionals since energy savings can be realized from shifting some of the load operations to the off-peak times. However, for these savings to be realized, real time monitors have to be installed to monitor the consumption and hence determine which specific loads can be shifted to other times.

A sample calculation of this structure is as shown below.

The combined seasonal pricing and a three-part time of use rate is highly used in European countries and a sample billing structure can be as shown below.

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