CEA Utility Rate Structures & Tariffs 2 — Questions and Answers
Question 1: A commercial customer is billed under a ratchet clause that charges 85% of the peak demand recorded in the last 12 months. Last year's peak was 500 kW but this month's actual demand is 300 kW. What is the billable demand?
- 300 kW
- 425 kW (Correct answer)
- 500 kW
- 255 kW
Correct answer: 425 kW
The ratchet applies 85% of the 12-month peak (0.85 × 500 kW = 425 kW), which exceeds actual demand of 300 kW, so 425 kW is billed.
Question 2: Which rate design mechanism is specifically intended to decouple utility revenue from the volume of electricity sold?
- Inverted block rates
- Revenue decoupling adjustments (Correct answer)
- Demand ratchet clauses
- Interruptible service riders
Correct answer: Revenue decoupling adjustments
Revenue decoupling adjustments separate utility revenue recovery from sales volume, removing the disincentive for utilities to promote energy efficiency.
Question 3: A manufacturing plant operates on an interruptible service tariff. The utility issues a curtailment notice. Which consequence is most likely if the plant fails to curtail?
- Automatic power factor penalty
- Penalty charges or loss of interruptible rate discount (Correct answer)
- Immediate disconnection with no recourse
- Upgrade to firm service at no cost
Correct answer: Penalty charges or loss of interruptible rate discount
Interruptible tariffs offer lower rates in exchange for agreeing to curtail; non-compliance typically triggers contractual penalty charges or forfeiture of the rate discount.
Question 4: What is the primary purpose of a fuel adjustment clause (FAC) or energy cost adjustment in utility tariffs?
- To recover costs of grid modernization investments
- To pass through changes in fuel and purchased power costs to customers between rate cases (Correct answer)
- To penalize customers for low power factor
- To incentivize off-peak electricity consumption
Correct answer: To pass through changes in fuel and purchased power costs to customers between rate cases
A FAC allows utilities to automatically adjust bills for fluctuations in fuel and purchased energy costs without filing a full rate case.
Question 5: Under a real-time pricing (RTP) tariff, what information must a customer monitor to optimize their energy costs?
- Annual load factor targets set by the utility
- Hourly or sub-hourly wholesale electricity prices (Correct answer)
- The utility's peak demand season calendar only
- Monthly fuel adjustment factors
Correct answer: Hourly or sub-hourly wholesale electricity prices
RTP tariffs price electricity at or near wholesale market prices that change hourly or more frequently, requiring customers to track these signals to shift or curtail load.
Question 6: Which of the following best describes a standby or backup service tariff?
- A rate for customers generating their own power who need utility supply when their generator is unavailable (Correct answer)
- A flat-rate tariff for residential customers with solar panels
- An interruptible rate available only to industrial customers above 1 MW
- A rate that decouples fixed cost recovery from energy consumption
Correct answer: A rate for customers generating their own power who need utility supply when their generator is unavailable
Standby tariffs cover utility power provided to self-generating customers during scheduled maintenance or unplanned outages of their on-site generation.
Question 7: A utility's tariff includes a minimum monthly bill calculated as the greater of the energy charge or $8.00 per kW of connected load. What is this provision designed to recover?
- Variable fuel costs tied to generation dispatch
- Fixed infrastructure and capacity costs regardless of usage (Correct answer)
- Demand response program costs
- Transmission congestion charges
Correct answer: Fixed infrastructure and capacity costs regardless of usage
Minimum bill provisions ensure recovery of fixed infrastructure costs even when a customer uses very little energy in a billing period.
CEA Utility Rate Structures & Tariffs 2
A commercial customer is billed under a ratchet clause that charges 85% of the peak demand recorded in the last 12 months.
Last year's peak was 500 kW but this month's actual demand is 300 kW.
What is the billable demand?