Question

A facility that manufactures fireworks has a large increase in production every June, such that their peak electrical demand is 101, while in every other month of the year their peak electrical demand of 50. The local utility informs the client that they will be changing the rate structure. The demand charges will decrease from $7.54/kW to $5.37/kW. But the utility will start imposing a ratchet clause at 80% of peak demand. What will be the expected change in annual demand costs for the facility? (When entering your answer, please note that a positive # indicates that the facility costs will increase, whereas a negative # indicates that the facility costs will decrease.)

Answer 1

Ratchet clause in Utility billing is the provision under which the demand charge for a period (here, an year) is based on the highest measured demand (or its percentage) over the period.

Facility costs as per previous billing policy: (at $7.54/kW)

Electri peak demand is 50 for 11 months and 101 for the month of June.

Bill = 50*7.54*11 + 101*7.54 = 4908.54

Facility costs as per new billing policy: (at $5.37/kW and Ratchet clause)

As a result of imposing Ratchet clause, the bill is charged at 80% of highest measured demand. Here, highest measured demand is recorded every year in the month of June which is equal to 101

Therefore, Bill = (12)*(80% of 101)*(5.37) = 5206.752

Net increase in facility cost due to new billing system = 5206.752 - 4908.54 = 298.212