Let's Face It Renewable Energy Is The Wave Of The Future

Let's Face It Renewable Energy Is The Wave Of The Future

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Let's Face It Renewable Energy... Is The Wave Of the Future

But What Can I Do Now To Lower My Electric Cost Until Renewable Energy
Is More Cost Effective ?


In 20 years from now we will most likely all be using some type of renewable energy. In fact Bill Gates was quoted as saying that renewable energy would be like the IT industry of the 90s over the next few years . However we need relief now from the pressures of rising natural gas price and electric cost. There are some ways that we can do that based on the deregulation of those industries. And I will show you why we are able to have some control over what we pay for energy.


Utility Rates and Cost

Regulation of utility rates is based on regulation of utility costs. A utilitys costs are composed of two
primary components -- capital investments and operating expenses. Capital investments include
generating plants, transmission and distribution systems, and other infrastructure such as office buildings.
Utilities raise capital for investments by borrowing from lenders and issuing stock to investors.

Rate of Return

Regulators allow utilities to earn a rate of return on invested capital raised from investors, a sum that is
called the rate base. Regulators set the rate of return in a range that allows a utility to earn a profit on its

investment and attract capital at favorable rates (compared to bank borrowing). Payment of the rate of
return allows a utility (and its investors) to recover its investment through rates. Thus, the rate of return
allows a utility to recover a return on its investments (like interest on a loan) and a return of its
investments (like repayment of loan principal). Operating expenses for a utility consist primarily of
generating-plant fuel costs, purchased power and transmission services, and labor. Fuel costs vary
depending on how much power is produced. Labor costs vary somewhat with power production and
other utility operations, but are mostly fixed costs, in the short run.

The combination of debt service and operating expenses is the amount needed by the utility to operate
effectively, its revenue requirement. Revenues from rates need to equal that amount. This, plus the
allowed rate of return, sets the rate level. The process of rate making involves translating the rate level
into specific rates for each customer, a process called rate design. The rate-making ideal is for the cost of
service to be perfectly allocated to each customer; that philosophy is one of cost follows cause. However,
customizing rates for each individual customer is far too expensive and cumbersome. Instead, rate
design approximates customer-specific costs by grouping customers into similar customer classes. Rates
are then designed to recover costs from a representative customer for each class .
Typical rate classes include residential, small commercial, large commercial, industrial, and street
lighting. Customers are allocated into classes to ensure each class pays for an equitable share of utility
costs. As a result, the use of utility infrastructure has to be allocated to each customer class. For example,
residential customers require more infrastructure to serve because they use power at a lower
voltage (which requires more substations, distribution wires, and transformers). Large industrial customers
can use power at high voltage levels and are often served directly off the transmission grid. In
other words, they may not require any distribution infrastructure and may not pay for any share of those
services.

Fixed Costs

Rates are also designed to recover fixed and variable costs equitably from each customer class. Fixed
costs are assigned in rates through three mechanisms: 1) a customer charge, 2) a usage or kilowatt-hour
charge, and 3) a demand charge.

Customer Charge
The first component, the customer charge, is designed to cover customer service costs, including
metering, billing, and providing marketing and customer service facilities. The customer charge varies
for each customer class and is generally a flat monthly fee regardless of consumption.


Kilowatt-Hour Charge

Recovering energy costs from customers is the second component of rates and the largest part of all
power bills. Energy costs are recovered through a usage or kilowatt-hour charge. The simple form of a
kWh charge is a fee that is the same regardless of time or quantity of use. Many small utilities use this
kind of rate design, referred to as a flat rate, because it is easy to administer using simple kWh meters.
However, most large utilities employ more sophisticated cost recovery mechanisms or rate designs. One
common mechanism is for the cost per kWh to either decrease or increase as total use increases, which
can be done through rate structures known as declining block or inverted rates. Inverted rates are the converse of declining block rates designed to discourage increased power use. Both
declining block and inverted rates can have multiple blocks. The simplest form consists of two blocks.
However, three or four blocks, each with a different kWh charge, are not unusual. Obviously, this kind of
rate design requires regulation, as the utility earns extra profits as a customer consumes more power.
Such a design would be impossible to implement in an open and competitive market where consumers
tend to choose suppliers based on price. I took you through this little lesson in electric rates so that I can show you how to save money with fixed rates . Power production costs vary by time of day and season due to the differences inherent in the power plants
that are on line during each period. Some utility rates also reflect these costs in time-of-use or real-time
rate designs. Time-of-use (TOU) rates are similar to inverted and declining block rates in that the
kilowatt-hour use charge varies in blocks differentiated by the time of use or season and often both. A
simple TOU design may have a rate that changes on a seasonal, or monthly basis, with a higher kilowatt hour
charge in months with high demand . This kind of TOU rate does not require the utility
to invest in more complex and expensive TOU meters. TOU (time of usage meters ) meters can save you money but they cost about $1000.00 to install . Energy charges in deregulated markets will be based on prices set in real-time markets. This may
not require customers to switch to real-time rates and associated meters, although most customers who do
so will be in a better position to take advantage of competitive power markets.

Below you will see a charts on electric cost vs. usage please note on the last chart that in the summer months your kw per hour
price doubles that's why fixed rate electric is the way to go until renewable energy is to a point where it is more affordable and dependable .With Customer Choice plans you can lock your energy rates in for a set period to avoid spikes in energy cost . Or you can lock half of your rate to realize savings on the half that isn't locked in or you can go with a variable monthly rate. These steps will give you some immediate relief until renewable energy catches up.


About the Author:
For more infomation on how you can stare saving money today contact me at www.lowermygasandelectric.com



Article Originally Published On: http://www.articlesnatch.com


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