Electric Service: Charging for Power and Energy

The electric term for power is that of Watts and the conversion is that 1.34 horsepower equals 1,000 Watts or 1 kilowatt (kW). If they think about it for a bit most consumers can understand that a 400 HP engine is twice as powerful (in delivering energy in the same time period) as a 200 HP engine.

Consumers, as homeowners or renters.  will also usually be familiar with the concept of exceeding the capacity of their internal wiring to meet electric “power” requirement. This happens when a fuse blows, or a circuit breaker is tripped. Most people know that they have plugged in one electric end use device too many for that circuit and exceeded the power delivery capacity. See the table below for typical power requirements of home devices.

Energy, for electricity purposes, is measured in Watt-hours and is generally defined as the “capacity to do work.” For electric utility billing purposes in the US energy is the total electric consumption measured in kilowatt-hours over a period of time, typically billed over a month period. In natural gas utilities energy is measured in British Thermal Units (BTU), Therms, Joules or billed on a volumetric basis MCF (1,000 Cubic feet) with an associated BTU/MCF.

The term “demand” is the customer’s instantaneous peak requirement for power. Customer demand will vary during the hour, day, month, season and year. The key to the regulatory requirement for “adequate service” is to ensure that each customer’s maximum or peak demand is met by the electric system.  In that regard, the term “capacity” is used to describe the ability of the electric power system to adequately serve the combined customer maximum demand or “peak load” requirements (in terms of kilowatts or megawatts.) The electric system much have adequate “capacity” to meet the anticipated “demand.” This also means that reserve capacity must also be procured to planned and unplanned outages of electric generation. It’s the capacity of the system which dictates the investment required to meet demand.

The concept of a “demand charge” in electric rates, according to Harry Barker’s PUBLIC UTILITY RATES (McGraw Hill 1917) dates back to 1892 when the British engineer Dr. John Hopkinson introduced the concept of charging separately for demand and energy as billing components. This has been known in electricity regulation for the past hundred years as the “Hopkinson Demand Rate” and has a number of variations concerning how the rate is structured with respect to “blocks’ of usage or demand.

Utility rate experts will be familiar with the historic and continuing application of this “demand” rate in the industrial and business classes. A question arises as to whether this three-part rate (customer charge, demand charge and energy) was proposed in the late 1800’s for the residential class as well.

The answer is that the option of a three-part rate including a demand charge for residential customers was fully understood and discussed over a hundred years ago. Keeping in mind that at that time, Barker is writing in 1917, residential electricity consumption was very low per month so that even the cost of an electric meter and the usage of the meter were factors to consider when setting rates. Central air conditioning and many other now common appliances were not yet available.