Electric utility costs are determined by a site’s load magnitude and shape and its utility bill structure. Historically, electricity charges were based on monthly usage and sometimes on peak demand. Utility rate structures are becoming increasingly complex in many places. Federal agencies may want to review their electricity rates for several reasons:

  • A site may qualify for more than one rate and may want to know what rate results in the lowest overall cost of electricity given current or anticipated electric loads
  • A site may anticipate load increases or decreases, which could impact the rates for which it qualifies
  • A site may be considering a distributed energy or load-management project and needs to understand the potential impacts on the current rates and whether additional charges or alternative rates are applicable.

Understanding Electricity Use and Cost

Graph displaying examples of hourly electric load.

Electric load is characterized by load magnitude (as shown in the green shaded area) and by load shape (as reflected in the peaks and valleys of maximum electricity consumption across time).

Electricity Use

A site's electric load is characterized by the amount of electricity consumed (load magnitude) and when that electricity is consumed (load shape).

Advanced meters typically track electricity consumption on an hourly or 15-minute basis; this is referred to as interval data. Common electricity use characteristics include total electricity consumption (green shaded area) and maximum electricity consumption at a given time (blue line).

Electricity Cost Components

A site's utility bill typically has several cost components, each of which is determined differently. Changes in electricity use from energy efficiency measures or on-site generation projects impact the charges differently.

The table below describes three broad components common to most utility bills.

Bill ComponentHow It Is BilledHow to Lower this Charge
Energy charges
  • Based on amount of electricity (kWh) consumed
  • Cost can vary by time of use and by season
  • Reduce overall consumption
  • Shift usage from high- to low-cost periods
Demand charges
  • Based on maximum demand (kW) during a given period, typically each month
  • Curtail usage during peak demand period
  • Shift usage to different period
Fixed charges
  • Fixed cost billed monthly
  • Determined by rate schedule, not consumption
  • Usually not possible

Site Current Rate

A site's rate is typically first determined based on delivered voltage. In general, smaller sites tend to receive lower voltage. For a given voltage, there may be different rate options, typically based on highest monthly kW peak(s). However, energy use at the site may have changed over time, and information may be dated—the current rate may be based on usage dating back a decade or longer. Fifteen states are deregulated and offer electric choice, meaning the site can get electric supply from a provider other than the servicing utility.

Evaluating Utility Rate Options

Take the following steps to explore utility rate options for your site.

Step 1: Obtain and Review Utility Bills

Obtain bills for both local distribution and supply if these are separate (most third-party suppliers have arrangements with the distribution utilities to consolidate charges into one bill). Your utility bill can show you:

  • Name and components of rate
  • Current monthly consumption (in kWh) and peak demand
  • Historic monthly consumption, often shown in a table or 13-month bar chart.

Step 2: Obtain and Review Interval Data from Your Utility’s Energy Information System

Interval data may not be available for all sites. If available, interval data can show you:

  • Hourly or 15-minute consumption (in kW)
  • Monthly peaks.

Step 3: Understand Your Site's Utility Rate Options

Depending on your state and utility, you may have alternative choices for rates and providers.

  • Are you in one of the states that offers electric choice? These states often have non-utility provider services that provide energy supply options.
  • Does your utility offer time-variable pricing programs? Both utilities and third-party providers operating in electric choice states often offer "time-variable pricing" rates. These include rates that change by set amounts at set times (called "time-of-use" rates), and rates that reflect the hour-to-hour movements in the underlying wholesale electricity markets (called “dynamic” rates).
  • Utilize your utility's website or the Utility Rate Database to understand what your rate options may be.
  • Contact your utility representative (the phone number is often listed on the utility bill) to understand if there are alternative options.

Step 4: Evaluate If an Alternative Rate May Be Beneficial to Your Site

Use your gathered data to crunch the numbers and weigh your options.

  • Use an energy planning tool such as REopt Lite to compare the life cycle cost of electricity under various rates.
  • Contact your utility representative to inquire if they can perform a utility rate review.
  • Visit the FEMP Assistance Request Portal, and use the Ask FEMP a Question feature (select UESCs, which stands for utility energy service contracts).

Utility Rate Glossary

Bundled rateBoth the electric supply (kWh consumed) and the electric delivery (transmission and distribution) are provided by the same provider.
Unbundled rateThe electric supply (kWh consumed) and the electric delivery (transmission and distribution) are provided by different providers. These can be billed separately (site receives two separate bills) or together (site receives one bill that includes both charges).
Time-of-use demand chargesDemand charge based on the site's maximum demand only during specified hours. Can have multiple time-of-use periods (for example, a rate may have both an on-peak demand charge during the middle of the day, and a separate shoulder or part-peak demand charge. Can vary by season (for example, summer on-peak demand charges may be higher than winter on-peak demand charges, or winter on-peak demand charges may be non-existent).
Non-coincident demand chargesDemand charge based on the highest monthly demand, regardless of time of day. Can be instead of or in addition to on-peak demand charges.
Demand charge look-back (ratchet)Methodology of calculating demand charge by considering both the current month and previous months' peaks. Often calculated as the maximum of current month's peak demand, and X% of previous 11 months' peak demand. Applies to both time-of-use and non-coincident demand charges. This means that occasional high spikes in electricity consumption can set the demand charge for the rest of the year.
System-peak demand chargeBased on site's contribution during utility system peak. Examples include PJM's 5CP charge (applied to average load usage during PJM's 5 highest non-coincident peaks) and ERCOT's 4CP charge (applied to average load during system coincidental peaks occurring in June, July, August, and September).
Standby and departing load chargesCharges based on site electric load, not utility purchases, that cannot be offset by distributed energy projects.
Minimum import requirementThe minimum amount of electricity that a site must purchase from the utility provider at all times. Can be based on size of distributed generation assets.