CEA Utility Rate Structures & Tariffs 3 — Questions and Answers
Question 1: A hospital's power factor is measured at 0.78 lagging. Its tariff imposes a power factor penalty below 0.90. Which action would most directly eliminate this penalty?
- Installing additional lighting load to increase kWh consumption
- Adding capacitor banks to supply reactive power locally (Correct answer)
- Switching to a time-of-use rate schedule
- Negotiating a demand ratchet waiver with the utility
Correct answer: Adding capacitor banks to supply reactive power locally
Capacitor banks supply reactive (VAR) power locally, raising the power factor toward unity and eliminating the lagging power factor penalty.
Question 2: Under a net metering tariff, what happens when a customer's renewable generation exceeds their consumption during a billing period?
- Excess energy is purchased by the utility at the full retail rate in all states
- The meter runs backward and excess kWh credits are applied to future bills or compensated at a defined rate (Correct answer)
- The customer is disconnected to protect grid stability
- Excess generation is subject to demand charges
Correct answer: The meter runs backward and excess kWh credits are applied to future bills or compensated at a defined rate
Net metering credits excess generation against future consumption or compensates it at a specified rate, though the exact compensation varies by state and utility policy.
Question 3: What distinguishes a coincident peak demand charge from a non-coincident peak demand charge?
- Coincident peak is based on the customer's own highest 15-minute interval; non-coincident is based on system peak
- Coincident peak is based on the customer's demand at the time of the utility's system peak; non-coincident is based on the customer's own monthly peak (Correct answer)
- Coincident peak applies only during winter; non-coincident applies year-round
- Coincident peak is a fixed monthly charge unrelated to measured demand
Correct answer: Coincident peak is based on the customer's demand at the time of the utility's system peak; non-coincident is based on the customer's own monthly peak
Coincident peak demand reflects the customer's load at the moment the entire utility system peaks, directly tying cost to grid stress; non-coincident measures the customer's own highest demand regardless of when it occurs.
Question 4: A large industrial customer is offered a special contract rate below the published tariff. Under which regulatory condition is this typically permissible?
- When the customer agrees to pay a higher power factor penalty
- When the contract rate still covers the utility's incremental cost of service and is approved by the regulator (Correct answer)
- When the customer operates in a state with no public utility commission
- When the customer's load exceeds 100 MW only
Correct answer: When the contract rate still covers the utility's incremental cost of service and is approved by the regulator
Special contracts are permissible when rates cover incremental costs, avoiding cross-subsidization of other customers, and are approved by the relevant regulatory authority.
Question 5: In a declining block rate structure, a large industrial customer consuming 5,000,000 kWh/month will pay a lower average rate than a small commercial customer consuming 10,000 kWh/month. What is the traditional justification for this design?
- Large customers have lower power factors requiring more reactive compensation
- Large customers historically required more transmission investment
- Larger loads spread fixed utility costs over more kWh, reducing per-unit costs (Correct answer)
- Large customers always consume power during off-peak hours
Correct answer: Larger loads spread fixed utility costs over more kWh, reducing per-unit costs
Declining block rates reflect that fixed costs per kWh diminish as consumption rises, so very large customers are served at a lower marginal cost.
Question 6: What is the key characteristic of a demand subscription tariff (also called a fixed demand or capacity subscription rate)?
- Customers pay only for actual kWh consumed with no fixed charge
- Customers pre-subscribe to a capacity block and pay a fixed fee for that capacity regardless of whether they use it (Correct answer)
- Customers are billed solely based on reactive power consumption
- Customers pay a premium during summer peak months only
Correct answer: Customers pre-subscribe to a capacity block and pay a fixed fee for that capacity regardless of whether they use it
Demand subscription tariffs charge customers for a reserved capacity block, incentivizing them to stay within that block to avoid overage penalties.
Question 7: A utility's tariff includes a green pricing premium rider that adds $0.015/kWh to a customer's bill. What does this rider typically fund?
- Recovery of stranded costs from deregulation
- Purchase of renewable energy certificates (RECs) or renewable generation on behalf of the customer (Correct answer)
- Demand response incentive payments to other customers
- Grid hardening and storm restoration costs
Correct answer: Purchase of renewable energy certificates (RECs) or renewable generation on behalf of the customer
Green pricing riders fund procurement of renewable energy or RECs so that the subscribing customer can claim a renewable energy supply without installing on-site generation.
CEA Utility Rate Structures & Tariffs 3
A hospital's power factor is measured at 0.78 lagging.
Its tariff imposes a power factor penalty below 0.90.
Which action would most directly eliminate this penalty?