Electricity Billing Considerations: Difference between revisions

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==Complex systems==
=Current contract and billing terms=
Consumers have been billed for decades using a clear and easy to understand system based upon consumption. In most countries there was an energy unit used for electricity billing, the kilowatt/hour and the cubic meter for gas billing. The cost would linearly increase based on the units of energy being recorded as used by the utility meter. The meter would be  monthly read and a consumer bill was released.
It is important to know your current billing system and this is presented both in the utility provider contract as well as it is reflected on your bills. Although there may be better offers to the one that is currently enforced, it is good to know the current terms and how well your current consumption pattern fits them so you need to make some initial assessments before taking any action.


Current energy billing got more complex as utility companies tried to find ways of being more creative and cater to the apparent needs of clients. Government intervention also introduced various surcharges and additional costs based on consumption. This lead to convoluted systems that use variable rates, tiered pricing, service fees, various surcharges. Some bills are even seasonally adjusted.
Being informed of other offers from your utility company is helpful in finding out the best long term approach but you should not have extreme expectations. Consumption alone is still the biggest factor in the total cost.


Complex billing is one key reason that energy consumption and its true impact is harder to determine. In order to have effective cost reductions it is necessary to understand your current billing and contract terms.
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==Current contract and billing==
There may be some difficulty in moving from one billing choice to another from the same utility company such as a specific contract duration being passed or other limitations.
It is important to know your current billing system and this is presented both in the utility provider contract as well as it is reflected on your bills. Although they may be better offers to the one that is currently enforced, it is important to understand the current terms and how well your current consumption pattern fits them so you need to make some initial assessments before taking any action.


Being informed of other offers from your utility company is helpful in finding out the best long term approach but you should not have extreme expectations. Consumption alone is still the biggest factor in the total cost. There may be some difficulty in moving from one billing choice to another from the same utility company such as a specific contract duration being passed or other limitations.
Note that even though a flat rate based on consumption is the most obvious option and should be the cheapest, utility companies actively discourage such a choice by making the energy unit price much higher than on other ways of billing, if this option is still available.


Note that even though a flat rate based on consumption is the most obvious option and should be the cheapest, utility companies actively discourage such a choice by making the energy unit price much higher than on other ways of billing. This is clearly so for electrical energy billing as here the energy unit price has always been higher than on gas and the cost impact on consumers was also the highest.
=Electricity billing=
The actual energy bill is rarely determined clearly, through a simple multiplication of energy unit cost with consumed energy units, as metered.


==Electricity billing==
Modern utility contracting systems use complex calculations to determine the total bill cost for a given month. This cost is computed, generally, by combining the following separate costs.
There are many ways to consider electricity consumption over a period of time other than a single flat rate. Advanced meters or smart meters make consumption monitoring and billing even easier for utility companies, increasing the prevalence of variable pricing and reducing the classical one of flat rate.  


Recent technology and policy changes migrated billing to variable rate. It may be a separate price for day/night consumption, a different subsidy to cover consumption tiers, seasonal adjustments or a combination of these or other approaches. However, no matter how you consider it, billing uses one of the following systems or a combination of both:
'''Partial cost''' = Demand or service charge + Energy cost + Free market cost adjustment (if exists) + Renewable power promotion cost<br>
'''Total cost''' = Partial cost + Surcharges (Value Added Tax and others)
==Demand or service charge==
A fixed monthly cost that is established through contract, based on the consumption profile agreed upon. Sometimes, agreeing to a demand or service charge can result in a lower energy unit cost agreed through contract, if an option for a only a flat rate energy unit consumption also exists.


===Flat rate===
In other cases, as in Japan, the demand charge is mandatory and it depends on contracted maximum installed power tiers, from 10 to 60 Amps maximum current draw, being halved when there is no energy consumption recorded on location.
This billing system basically means that cost is established solely based on the amount of energy being used, as indicated every month by the metering device, on the same billing period. For cost reduction purposes, some utility companies chose to migrate towards a self reported index system with seasonal checks and adjustments in place.


Basically, a flat rate system derives the amount as follows: 
==Energy cost or charge==
Total = (Amount of energy units used x Unit of energy cost) + Surcharges (for instance, Value Added Tax)


Note: Many individuals and businesses do not chose a flat rate billing system because it would be the most expensive, if given the choice. However, many times, the consumer may not have any negotiating power if he is not also the building owner.
===Energy charge rate (partial cost calculation)===


===Flat rate with service fee===
Previously, energy was charged only based on a flat rate per unit of consumption. The energy unit cost could be annually adjusted and was decided by the national government. None of the developed countries still use the flat rate alone to determine energy cost.
In actuality, this is a mix between a flat rate and a tiered system. The difference is that the flat rate is established based upon a so-called service fee, that has to be payed monthly, regardless of the amount of energy being consumed. Guaranteeing a specific income out of any customer is much more financially attractive for the utility company than having a totally consumption based billing.


A service fee that ends up in a lower energy unit cost is also advantageous to the client. In actuality, this billing is nothing more than securing, without a clear contract obligation, that a customer does not offer less than a specific amount of profitability.
Keep in mind that energy unit cost is also a value determined through production and distribution costs, that may or may not be separately reflected on the energy bill. The calculus below is repeated for each consumption price tier presented below.


===Variable rate===
'''Energy cost''' = Energy unit cost x monthly energy units consumed
The variable rate system is complex, but basically means a tiered pricing structure where used energy is billed differently for specific amounts of time. The most common ones are presented below.


====Partial subsidy based on tiered consumption ranges====
===Tiered consumption range (most popular)===
A recent system introduced to cover high energy price for vulnerable consumers. This system may remain in place after the energy crisis as will be assessed by governments. In Europe, for instance, it may be as follows:
The first 100 kwh of metered energy are priced at a heavily discounted price (50% than current market price)
The next 200 kwh of metered energy are priced at a discounted price (25% less than current market price)
The rest of the metered energy consumption, if there is any, is billed at full market price.


====Day/Night consumption (peak and off-peak)====
This system is devised to encourage consumers to use less energy. Commonly, there are three price tiers for the energy unit, and any consumption over a specific range is billed separately. The model below is based on Japan.
Using more advanced meters it is possible to determine consumption between specific moments of the day.
Day consumption or peak is considered between 8:00 and 22:00 on the same day, price is 20-20% higher than during the night
Night consumption or off-peak is considered between 22:00 and 8:00 on the next day


This system can be highly disadvantageous because it may sometimes be impossible to have most of the consumption on the off-peak period.
Another European model, for instance, partially subsidies the energy price ending in a discount of 47% at tier 1 and 25% at tier 2 from the full energy unit price, with different consumption ranges such as below 100 kw/h and between 100-300 kw/h. Consumption ranges and discounts can change over time.


====Season adjusted (another peak and off-peak system)====
{| border=1 cellspacing=0 cellpadding=2
The season adjustment is another peak billing system that favours higher consumption outside mid summer and winter times, when most electricity consumption does occur. In some cooler climates it means that energy used outside the peak periods is more expensive than the one during the peak periods, to reach an uniform price distributed throughout the year.
|- style="background:#efefef;"
! Tier !! Consumption range !! Energy unit cost
|-
| 1 || 0-120 kw/h || 25% discount of full price
|-
| 2 || 120-300 kw/h || 15% discount of full price
|-
| 3 || 300 kwh/h and more || full price
|-
|}


====Variable billing interval====
===On and Off-peak consumption tiers===
This system is not a system per se, but an option that has sometimes been used by utility companies to ensure a specific income and spread the billing periods for users on geographical areas. It basically means that instead of a stable monthly billing cycle, a variable time could be specified, covering 24 or 33 days, as the utility company saw it fit. This made monthly energy consumption assessments much more difficult just by looking at billing information.


==Gas billing==
There are various ways to consider on and off-peak energy costs, but the most popular one is based on hourly intervals that define day/night consumption.
Gas billing is almost always based upon a flat rate determined through gas volume being passed onto the consumer but this may change and the cost structure already includes various surcharges and adjustments. Some utility companies also have tiered monthly consumption ranges that reduce cost as the client ensures a certain energy consumption every year.  


===Flat rate===
Some utility providers offer more flexibility in choosing on and off-peak pricing plans. The model below is from Japan. In other countries cost rate adjustments may differ.
In Europe, for instance, the metered gas, as measured in cubic centimeters, may have an equivalent value adjusted based on thermal (burning) energy release, even though it still is mostly a flat rate. In the future, a variable rate system may be introduced.


Currently, the flat rate system, even if it seems to be present, is not a true flat rate system but a hybrid flat rate, since it has additional costs that are considered in the billed total and some of these costs do have some variation to it.
{| border=1 cellspacing=0 cellpadding=2
|- style="background:#efefef;"
! Tier !! Time !! Energy unit cost
|-
| 1 || 8-22 (daytime or peak)|| full price
|-
| 2 || 22-8 (nighttime or off-peak)|| half price
|-
|}


===Flat rate with tiered consumption===
The most important aspect is that night or off-peak consumption is considerably cheaper than on-peak consumption, by as much as 50%
Sometimes, this system is being transparently offered to consumers or it is being enforced as their consumption is determined. This way of billing sets a lower energy unit rate for higher consumers, based on different consumption ranges.


It is important to note that split fuel cost structures may also be introduced as methane is mixed with hydrogen, in different proportions and up to 30%, in the next decade. This will obviously increase the cost of gas but slightly reduce air pollution and dependency of foreign gas imports.
===Free market cost adjustment (mandatory)===


===Future systems===
With liberalized energy markets in most countries, there is an additional adjustment either applied in the base energy unit price or separately represented by a fuel cost adjustment. It is proportional to the energy consumption in a given month.
The same systems employed on electricity metering and billing may also be applied to gas, in the future, as it is entirely possible to do so as soon as more advanced meters come into the market.
 
'''Free Market cost adjustment''' = adjustment value x monthly energy consumption
 
This adjustment is established in most countries on a yearly or monthly base, the latter being the case in Japan. A monthly fuel cost adjustment may be, in the future, applied to other developed countries.
 
==Other costs==
 
===Renewable energy power promotion (mandatory)===
 
This cost is a subsidy being offered to promote building more renewable energy power production facilities. The subsidy is being directed by the government to cover the initial additional cost of investing in such expensive facilities.
 
In Europe, this expense is tied to the so-called green certificates. It is proportional to the energy consumption in a given month.
 
'''Renewable energy power promotion cost''' = rate x monthly energy consumption
 
Renewable energy promotion and free market cost adjustments, non-negotiable components established through contract, do have an influence in the total cost of energy that is billed but this is limited. The largest influence is still due to energy unit price, based on tiered consumption, as well as the amount of energy consumption that directly increases other costs.
 
===Surcharges (mandatory)===
 
While renewable energy power promotion cost, fuel cost adjustments and various excises may be considered consumption surcharges, this is typically reserved for Value Added Tax that is applied to all partial costs.
 
The V.A.T. as is commonly known, can change by national government decision. It is typically between 5-25%, depending on country and product or service.


[[Category:Energy Conservation]]
[[Category:Energy Conservation]]

Latest revision as of 18:57, 11 May 2022

Current contract and billing terms

It is important to know your current billing system and this is presented both in the utility provider contract as well as it is reflected on your bills. Although there may be better offers to the one that is currently enforced, it is good to know the current terms and how well your current consumption pattern fits them so you need to make some initial assessments before taking any action.

Being informed of other offers from your utility company is helpful in finding out the best long term approach but you should not have extreme expectations. Consumption alone is still the biggest factor in the total cost.

There may be some difficulty in moving from one billing choice to another from the same utility company such as a specific contract duration being passed or other limitations.

Note that even though a flat rate based on consumption is the most obvious option and should be the cheapest, utility companies actively discourage such a choice by making the energy unit price much higher than on other ways of billing, if this option is still available.

Electricity billing

The actual energy bill is rarely determined clearly, through a simple multiplication of energy unit cost with consumed energy units, as metered.

Modern utility contracting systems use complex calculations to determine the total bill cost for a given month. This cost is computed, generally, by combining the following separate costs. 

Partial cost = Demand or service charge + Energy cost + Free market cost adjustment (if exists) + Renewable power promotion cost

Total cost = Partial cost + Surcharges (Value Added Tax and others)

Demand or service charge

A fixed monthly cost that is established through contract, based on the consumption profile agreed upon. Sometimes, agreeing to a demand or service charge can result in a lower energy unit cost agreed through contract, if an option for a only a flat rate energy unit consumption also exists.

In other cases, as in Japan, the demand charge is mandatory and it depends on contracted maximum installed power tiers, from 10 to 60 Amps maximum current draw, being halved when there is no energy consumption recorded on location.

Energy cost or charge

Energy charge rate (partial cost calculation)

Previously, energy was charged only based on a flat rate per unit of consumption. The energy unit cost could be annually adjusted and was decided by the national government. None of the developed countries still use the flat rate alone to determine energy cost.

Keep in mind that energy unit cost is also a value determined through production and distribution costs, that may or may not be separately reflected on the energy bill. The calculus below is repeated for each consumption price tier presented below. 

Energy cost = Energy unit cost x monthly energy units consumed

Tiered consumption range (most popular)

This system is devised to encourage consumers to use less energy. Commonly, there are three price tiers for the energy unit, and any consumption over a specific range is billed separately. The model below is based on Japan.

Another European model, for instance, partially subsidies the energy price ending in a discount of 47% at tier 1 and 25% at tier 2 from the full energy unit price, with different consumption ranges such as below 100 kw/h and between 100-300 kw/h. Consumption ranges and discounts can change over time.

Tier Consumption range Energy unit cost
1 0-120 kw/h 25% discount of full price
2 120-300 kw/h 15% discount of full price
3 300 kwh/h and more full price

On and Off-peak consumption tiers

There are various ways to consider on and off-peak energy costs, but the most popular one is based on hourly intervals that define day/night consumption.

Some utility providers offer more flexibility in choosing on and off-peak pricing plans. The model below is from Japan. In other countries cost rate adjustments may differ.

Tier Time Energy unit cost
1 8-22 (daytime or peak) full price
2 22-8 (nighttime or off-peak) half price

The most important aspect is that night or off-peak consumption is considerably cheaper than on-peak consumption, by as much as 50%

Free market cost adjustment (mandatory)

With liberalized energy markets in most countries, there is an additional adjustment either applied in the base energy unit price or separately represented by a fuel cost adjustment. It is proportional to the energy consumption in a given month. 

Free Market cost adjustment = adjustment value x monthly energy consumption

This adjustment is established in most countries on a yearly or monthly base, the latter being the case in Japan. A monthly fuel cost adjustment may be, in the future, applied to other developed countries.

Other costs

Renewable energy power promotion (mandatory)

This cost is a subsidy being offered to promote building more renewable energy power production facilities. The subsidy is being directed by the government to cover the initial additional cost of investing in such expensive facilities.

In Europe, this expense is tied to the so-called green certificates. It is proportional to the energy consumption in a given month. 

Renewable energy power promotion cost = rate x monthly energy consumption

Renewable energy promotion and free market cost adjustments, non-negotiable components established through contract, do have an influence in the total cost of energy that is billed but this is limited. The largest influence is still due to energy unit price, based on tiered consumption, as well as the amount of energy consumption that directly increases other costs.

Surcharges (mandatory)

While renewable energy power promotion cost, fuel cost adjustments and various excises may be considered consumption surcharges, this is typically reserved for Value Added Tax that is applied to all partial costs.

The V.A.T. as is commonly known, can change by national government decision. It is typically between 5-25%, depending on country and product or service.

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