CEA Utility Rate Structures & Tariffs 4 ā Questions and Answers
Question 1: A warehouse installs LED lighting and reduces its monthly energy consumption by 30%, but its 15-minute peak demand remains unchanged. Under a tariff with both energy and demand charges, what is the expected impact on the total bill?
- Total bill decreases proportionally by 30%
- Only the energy portion of the bill decreases; demand charges remain the same (Correct answer)
- Total bill increases because lower load factor raises demand costs
- Demand charges decrease because efficiency improvements always lower peak demand
Correct answer: Only the energy portion of the bill decreases; demand charges remain the same
LED retrofits reduce kWh consumption and therefore the energy charge, but if the 15-minute peak is unchanged, demand charges remain unaffected.
Question 2: Which of the following best describes a customer charge (also called a service or meter charge) on a utility bill?
- A variable charge proportional to monthly kWh consumption
- A charge based on the customer's measured peak demand during the billing period
- A fixed monthly fee charged regardless of energy use to recover metering and billing costs (Correct answer)
- An adjustment for fuel cost changes passed through from the utility
Correct answer: A fixed monthly fee charged regardless of energy use to recover metering and billing costs
The customer charge is a fixed monthly fee that recovers the basic costs of maintaining serviceāmetering, billing, and related infrastructureāindependent of usage.
Question 3: Under a critical peak pricing (CPP) tariff, when are the highest prices applied?
- Every weekday evening from 5 PM to 9 PM year-round
- On a limited number of utility-designated critical peak events, typically 10ā15 days per year during system stress periods (Correct answer)
- Continuously during the summer on-peak season
- Only during the hours when wholesale prices exceed $500/MWh
Correct answer: On a limited number of utility-designated critical peak events, typically 10ā15 days per year during system stress periods
CPP events are called by the utility on a limited number of days when system demand is expected to be very high, triggering substantially elevated prices to encourage demand reduction.
Question 4: A retail electric provider (REP) in a deregulated market offers a fixed-price product and a variable-price product. Which product exposes the customer to commodity market price volatility?
- Fixed-price product
- Variable-price product (Correct answer)
- Both products equally
- Neither; regulated utilities absorb all market risk
Correct answer: Variable-price product
A variable-price product tracks market price movements, so the customer's bill rises and falls with wholesale electricity prices.
Question 5: What does the term 'load factor' measure, and why is it relevant to demand charge management?
- The ratio of reactive to real power, relevant to power factor penalties
- The ratio of average demand to peak demand over a period, indicating how evenly load is spread (Correct answer)
- The percentage of a customer's load served by renewable energy
- The number of hours per month the customer exceeds contracted demand
Correct answer: The ratio of average demand to peak demand over a period, indicating how evenly load is spread
Load factor (average demand Ć· peak demand) shows how uniformly a customer uses energy; a higher load factor means demand charges are spread over more kWh, reducing the $/kWh cost of demand.
Question 6: A utility proposes shifting more fixed costs into the volumetric (per-kWh) charge rather than the fixed customer charge. What is a likely critique of this approach from an energy efficiency perspective?
- It unfairly penalizes large industrial customers who have the highest demand
- Higher volumetric rates send stronger price signals that incentivize conservation and efficiency (Correct answer)
- It reduces the incentive for customers to invest in energy efficiency by hiding fixed costs
- It makes demand response programs less effective by removing peak pricing signals
Correct answer: Higher volumetric rates send stronger price signals that incentivize conservation and efficiency
Higher volumetric rates actually strengthen the price signal for efficiency, making conservation more financially attractiveāthis is often cited as a benefit, not a critique.
Question 7: A natural gas utility's tariff includes a pipeline capacity release provision. What does this allow an industrial customer to do?
- Release contracted pipeline capacity back to the market during periods of low gas usage to recover credits (Correct answer)
- Interrupt gas service to other customers during periods of high demand
- Bypass local distribution company charges entirely
- Receive interruptible gas at a premium above firm service rates
Correct answer: Release contracted pipeline capacity back to the market during periods of low gas usage to recover credits
Pipeline capacity release allows customers holding firm capacity contracts to release unused capacity to other parties, potentially earning credits that offset their own transportation costs.
CEA Utility Rate Structures & Tariffs 4
A warehouse installs LED lighting and reduces its monthly energy consumption by 30%, but its 15-minute peak demand remains unchanged.
Under a tariff with both energy and demand charges, what is the expected impact on the total bill?