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What Is an Electricity Tariff?

Different utilities have different tariffs within both regulated and deregulated markets. These tariffs can greatly influence the amount of money that residents and businesses pay for electricity, along with other types of utilities. Here, you’ll learn more about electricity tariffs, how they impact businesses, and how a utility audit can help maintain compliance with them while saving money.

What Are Electricity Tariffs?

An electricity tariff is the amount of money that a supplier charges for supplying electrical energy to consumers. This tariff includes the cost of producing and delivering electrical power. The total amount of the electricity tariff depends on how consumers use electricity. For example, businesses often see higher electricity tariffs than residential consumers because they use electricity for longer periods and in larger quantities. 

What Contributes to an Electricity Tariff?

Multiple factors go into calculating the electricity tariff for consumers. These include:

Load Type

There are three main types of electrical loads, including industrial, commercial, and domestic loads. Industrial and commercial consumers tend to use more electricity than domestic consumers, leading to higher costs for the former.

Maximum Demand and When the Load Is Required

The time when properties require the maximum load will also influence the cost of the electricity tariff. If the maximum demand of the consumer falls at the same time as those of other nearby properties, the cost will increase. Conversely, if the maximum demand takes place when demand is generally low, consumers will see a reduced electricity tariff.

The Power Factor

The power factor also plays a big role in calculating the electricity tariff. This is the ratio of the actual power that the load absorbs to the apparent power that the AC circuit produces. If the power factor is low, the load current will increase, which leads to increased losses within the power system. This, in turn, leads to poor regulation. To improve the power factor, plants may have corrective equipment installed that further increases the cost of generation.

The Different Electricity Tariff Types

Facility manager looking at how a business's electricity tariff has changed over time

There are multiple types of electricity tariffs that can affect businesses. Each type has different qualifying factors that consumers need to meet before qualifying for them. These tariffs may include:

  • Flat demand rate — The tariff depends on the load’s maximum demand and doesn’t account for normal energy consumption.
  • Block meter rate — This tariff distributes energy consumption into different blocks, with each block featuring a fixed per-unit rate. The first block comes at the highest cost, with each subsequent block’s rate decreasing.
  • Power factor — The power factor tariff depends on the load’s power factor, resulting in either a kVA maximum demand tariff or a kWh and kVarh tariff. In the kVA tariff, the low power factor leads to an increased kVA rating. Meanwhile, the kWh and kVarh tariff entails calculating the sum of both the kWh and kVarh rating of the load.
  • Straight-line meter rate — The cost of this tariff depends on the amount of energy that the load uses and the diversity of the loads. For instance, larger power loads will cost more to run than power supplies for smaller devices. Meters help measure the amount of electricity consumed.
  • Two-part — The bill for these tariffs is split into two different parts: a fixed rate and a running charge. The maximum demand dictates the fixed rate, while the running charge accounts for the load’s energy consumption. 
  • Seasonal rate — Sometimes, consumers may pay a tariff based on the amount of power consumed at certain times of the year. For instance, consumers may use more power during the summer months due to increased demand. Then consumption greatly reduces in the fall and winter.

Determining Which Electricity Tariff Is Right for Your Business

An electricity tariff can impact the amount of money your business requires to operate. Keep in mind that each type of electricity tariff will affect costs in different ways. Depending on your location and the power you require for your business, you may qualify for different tariffs.

For example, one supplier market may offer a tariff for general usage if your business uses a certain minimum amount of power throughout the year and stays above a monthly demand threshold. However, you won’t qualify if that power demand falls below the threshold for a single month.

Once you qualify for a particular tariff, your business needs to remain compliant with its terms. Otherwise, your business will no longer qualify. Unfortunately, calculating these tariffs is often complex and based on numerous factors. The calculation takes into account demand generation, on-peak/off-peak consumption, when the consumer uses power, power factor, historical usage, and maximum demand, among other considerations. Because of the complexity of tariff calculation, it can be hard to determine whether you qualify and to ensure your business adheres to the tariff’s terms once qualified.

Depending on the electricity tariff, businesses could see anything from significant savings to net losses, with either net-positive or net-negative gains throughout the year. 

How Utility Bill Auditing Can Help

To make sure your business continues to qualify for an electricity tariff, an electricity audit is vital. This utility audit can help ensure you’re sticking to the terms of the tariff through accurate calculations. In addition, the audit uses a combination of expertise, proven methods, and superior technology to thoroughly examine all services and invoices for errors and inefficiencies. 

With the help of a comprehensive audit, you won’t need to worry about excess charges or erroneous line items. As a result, your business will remain compliant. You’ll also be able to save more money due to consistently error-free and efficient billing. 

If you want to benefit from an energy bill audit that covers electricity and other utilities, the professionals at Util Auditors have the experience, knowledge, and resources needed to give you the results you want. Some auditors merely make recommendations based on their findings. But our team will help implement cost savings and recover the refunds you’re able to receive. 

To learn more about what Util Auditors can do for your business through our auditing services, get in touch with us today.

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