The Estimated Effects on Industry of Time-of-Day Demand and Energy Electricity Prices

INDUSTRIAL electricity tariffs usually contain two types of consumption-related charges-the energy charge, assessed on total kilowatthours, and the demand (or capacity) charge, assessed on maximum kilowatts. Both charges can be differentiated by time of day, applying a premium to kilowatts and kilowatthours consumed during specified peak hours. The costs of both these dimensions-energy and maximum demand-vary by time of day and by season. Plant capacity must be constructed to meet the maximum, or peak, demand. Also, capacity is comprised of plants of varying fuel efficiencies. 1 Figure i depicts a typical firm's pattern of demand, or load curve, over 24 hours. Under traditional electricity prices, the firm pays, usually on a monthly basis, an energy price P for total energy (f'o E dt) and demand price P* for maximum demand (E*). If these charges are used in a time-of-day tariff, they will be at a higher level during potential utility system peak hours. Defining the interval (to, t1) as peak, intrapeak maximum demand equals Ep and peak energy use equals it' E dt. If both prices are differentiated by time-of-day, then Pp > Po and Pp > P*, where the subscripts denote the peak and off-peak periods.2 Time-of-day demand and energy charges can have differing effects. The peak energy charge encourages, within the peak hours, a reduction in the area beneath the load curve, that is, a reduction in peak energy (kilowatthour) use. It does not explicitly encourage a rearrangement of the load pattern within this interval, and so may not reduce the maximum intrapeak demand. The peak demand charge encourages a reduction in the maximum demand; this can be accomplished directly by flattening peak period use, or less directly by reducing use at each instant within the peak. Hence, the peak demand charge has its primary effect on the pattern of use, while the energy charge primarily nffprte th 1,p1 nf llq