Energy 101-Tariffs

In my last two blogs on the exciting (not) and interesting (not) subject of electric and gas billing, I mentioned the concept of tariffs. Now, most human beings don’t know much about the concept of tariffs. And really, they shouldn’t. Otherwise, get a life, right? But it does help to know a smattering about tariffs as it applies to gas and electric usage so you can save money.

Take the exit to Boring with me one more time and I’ll share some important information about tariffs. I promise you it’s a tedious subject, but I’ll make it as—hmmm…electrifying (now there’s a word)—as I can. Here we go.

What comes to mind when you hear the word “tariff”?

From my high school civics class, I learned that tariffs are taxes placed on imported goods and services.

When you think of tariff, you may not think of taxes, but you probably know it’s related to money. Right? And certainly, you’re interested in making money and saving money. It’s your fiduciary responsibility, and the reward for good stewardship of your business.

Voila! Tariff —> money —> interesting subject!

In the energy business, tariffs are documents approved by state regulators that spell out how electric and gas customers will be connected to service providers.

Tariffs typically provide details of all aspects of those connections, including how customers will be billed.

Some common information found in tariffs includes:

• Territory served

• Standard terms and conditions including:

  • Obtaining service

  • Charges for service

  • Service conditions (e.g. overhead, underground, etc.)

  • Meters

  • Meter reading

• Charges

• Rate classes and rates

• Payment schedules

It’s not important for you, a gas or electric customer, to fully understand your tariff, nor do you need to read the document. Thank goodness. Although they do contain important information, those documents may be over 100 pages long and include a lot of fine print.

Only parts of the tariffs affect you, depending on your rate class. What’s important is knowing what’s in the tariff that you can use to benefit your company. If you have profit and loss responsibility, pay attention. There may be unrealized upside that can be captured by using this information.

In deregulated states, your electric and/or gas service provider has provisions in their tariffs for third party suppliers. Those are companies that compete for your business by offering competitive rates for electric or gas supply. Tariff provisions give you the right to choose your supplier.

It gets interesting, but before I go on, I want to point out that “tariff” is not the only misunderstood term used in the energy business. The word “deregulated” is often used when discussing electric and gas rates. If you think that deregulation implies an energy market free-for-all, think again.

The fact is that the energy business is highly regulated across our great country. Deregulated simply refers to changes in recent years in some states’ regulatory policies that allow for electric and gas customers to select suppliers.

To determine if there’s money on the table, you need to compare the rates of various suppliers that serve your locations, and then use the results to make decisions. A logical starting point is fully understanding your current supplier’s rate.

Your challenge would be to look through your bills, get familiar with all the charges, and then make sure you understand how your supply charges are calculated. At least part of the supply charge will be based on usage, and if not fully delineated on the bill, details will be provided in the tariff.

It sounds simple, but it may be complicated. To illustrate the point of at least one potential pitfall, look at this example of tariff language for an industrial service energy charge. It’s identical to that of a well-known electric utility:

• Energy Charge:

For the First 125 kWh per KW Billing Demand per Month:

For the first 3,000 kWh per month, per kWh 11.7300 ¢

For the next 87,000 kWh per month, per kWh 7.0250 ¢

For all over 90,000 kWh per month, per kWh 6.4601 ¢

For the Next 275 kWh per KW Billing Demand per Month:

For the first 140,000 kWh per month, per kWh 5.5930 ¢

For all over 140,000 kWh per month, per kWh 5.3987 ¢

For all Over 400 kWh per KW Billing Demand per Month:

For all kWh per month, per kWh 5.1624 ¢

Straightforward? It appears that you can simply plug in your usage and calculate the charge.

Try it. Using an assumed consumption of 245,000 kWh for a month, with 687 kW demand, calculate the energy charge for that month.

No, the math is not difficult, and if you’re familiar with utility rate structure and tariff language, this may be a breeze. My guess, however, is that most customers may not correctly decipher the formulas.

Give it a shot. Send me your results using the contact form. I’ll respond right away to let you know if you got it right and provide an explanation of the calculations if you’re off the mark.

The point of this exercise is to demonstrate that as a business owner or manager, you are constantly challenged with resource management. Is it in your best interest to devote your time, or your staff’s time, to becoming subject matter experts on tariffs and electric and gas billing?

Or does it make sense to rely on industry experts, whose mission is to help you save money on your electric and gas expenses?

Your opportunity to save money is baked in the tariff. That’s the bottom line. The question is: how do you accomplish that effectively, accurately, and efficiently?

If you’re doing your own rate comparison, and get the math or formulas wrong, you could make a bad decision based on erroneous information. There’s a better option guaranteed to give you the most accurate answer.

Use my contact form and get in touch. At your request, I’ll initiate a rate analysis through my affiliation with Broker Online Exchange (BOX). The process is quick and easy. And here’s the BEST part—it’s free. BOX uses sophisticated technology and up-to-date pricing from over 90 suppliers to determine your best options.

The results will empower you to make an informed decision and potentially save money on your electric and gas expenses.

Contact me today! Standing by…