Managing wholesale power costs with time-of-use rate plan

By Randy Carroll, CEO

At a meeting I attended several years ago the speaker suggested we learn to change faster than the rate of change. What seemed like an odd challenge at the time has become a requirement for managing wholesale power cost.

In recent years, a lot of my time has been spent in meetings with Mississippi Power Company (MPC), Southeastern Federal Power Administration (SeFPC) and the Tennessee Valley Authority (TVA) analyzing, and many times arguing, our wholesale purchased power cost and rate structure when changes are suggested. Three years ago, TVA implemented seasonal base rate changes along with monthly fuel cost changes followed by seasonal time-of-day base rates. Most recently, TVA has implemented a grid access charge that is designed to recover a portion of their fixed cost. Between the monthly fuel cost adjustments and the base rate changes, EMEPA has experienced many changes in wholesale power pricing over the last couple of years.

During the last 12 months, EMEPA paid just over $50 million for wholesale purchased power to distribute to our 37,000 member accounts. Wholesale purchased power cost is the largest single variable in delivering service to you. Think about it this way, for every dollar we collect to cover the expense of delivering the power, we have to collect two more dollars to cover the cost of wholesale purchased power. Influencing the decisions at MPC, TVA and SeFPC is a crucial part of managing our members’ costs of having safe, affordable and reliable power.

Because EMEPA pays a large part of the power cost in demand related charges and the remainder in energy charges, influencing how these costs are divided affects our operating margin significantly.

Electric demand refers to the maximum amount of electrical power that is being consumed at a given time, as opposed to energy, which is the amount of power used over a period of time.

For example, the typical home iron requires, or demands, 1,000 watts of power. If that iron is used for two hours it consumes 2,000 watt-hours or 2 kilowatt-hours (kWh) of energy.

1,000 x 2 hours = 2,000 watt-hours (2 kWh)

Using multiple appliances at the same time increases your demand. The typical dishwasher uses 1,200 watts. If you used the dishwasher at the same time as the iron, the total demand for these two appliances would be 1,000 watts plus 1,200 watts or 2,200 watts. However, if you chose to use these two appliances at separate times, the maximum demand for these two appliances would only be 1,200 watts.

While EMEPA’s residential members are not directly billed based on demand, but rather on energy used, it is important to understand the basics of demand to realize the value in EMEPA’s new time-of-use (TOU) rate plan. Decreasing demand has the potential to lower EMEPA’s cost of delivering power to your home or business – a savings that can then be passed on to you.

EMEPA’s TOU rate plan is based on the time of day you use electricity and our cost of supplying electricity to you during that time. If you use electricity when the total used by all EMEPA members is low (off-peak) your rate will be lower than the standard rate. On-peak hours, or electricity used during periods of high demand, will cost more than the standard rate. By reducing your electric use during peak times, you have the opportunity to decrease your monthly energy costs without reducing the overall amount of electricity you use.

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