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Tariff

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CONTENTS

1. Tariff

2. Desirable Characteristics of a Tariff

3. Types of Tariff

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Also earns profit on the capital investment

The supply company has to ensure that the tariff is such that

It recovers the total cost of producing electrical energy

Introduction

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Tariff

The rate at which electrical energy is supplied to a consumer.

Objectives of tariff:

1. Recovery of cost of producing electrical energy at the power station.

2. Recovery of cost on the capital investment in transmission and

distribution systems.

3. Recovery of cost of operation and maintenance of supply of

electrical energy e.g., metering equipment, billing etc.

4. A suitable profit on the capital investment.

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Desirable Characteristics of a Tariff

A tariff must have the following desirable characteristics:

1. Proper return :The tariff should be such that it ensures the proper return from each consumer.

This will enable the supply company to ensure continuous and reliable service to the consumers.

2. Fairness : The tariff must be fair so that different types of consumers are satisfied with the rate of charge of electrical energy.

A consumer whose load conditions do not deviate much from the ideal should be charged at a lower rate than the one whose load conditions change appreciably from the ideal.

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3. Simplicity : Ordinary consumer can easily understand it

A complicated tariff may cause an opposition from the public

4. Reasonable profit :An electric supply company generally enjoys the benefits of monopoly.

Therefore, the investment is relatively safe due to non-competition in the market.

profit to be restricted to 8% or so per annum.

5. Attractive : Efforts should be made to fix the tariff in such a way so that consumers can pay easily.

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Types of Tariff

The following are the commonly used types of tariff :

1. Simple tariff /uniform rate tariff

2. Flat rate tariff

3. Block rate tariff

4. Two-part tariff

5. Maximum demand tariff

6. Power factor tariff

7. Three-part tariffhttp://iesco.com.pk/index.php/customer-services/tariff-guide

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1. Simple tariff /Uniform rate tariff

When there is a fixed rate per unit of energy consumed

This is the simplest of all tariffs and is readily understood by the consumers.

Disadvantages:

1. There is no discrimination between different types of

consumers since every consumer has to pay fixed charges.

2. The cost per unit delivered is high.

3. It does not encourage the use of electricity.

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2. Flat rate tariff

When different types of consumers are charged at different uniform per unit rates

Group 1: Lighting load different uniform rate and separate meter

Consumers are grouped into different classes and each class of consumers is charged at a different uniform rate.

Group 2: Power load different uniform rate and separate meter

Disadvantages:

1. Expensive and complicated as separate meters are required.

2. A particular class of consumers is charged at the same rate irrespective of the magnitude of energy consumed.

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3. Block rate tariff

When a given block of energy is charged at a specified rate and thenext blocks of energy are charged at progressively reduced rates.

Energy consumption is divided into blocks and the price per unit is fixed in each block.

First block : Price per unit is the highest Succeeding blocks : Price per unit is progressively reduced

Example:First 30 units may be charged at the rate of 60 paise per unit Next 25 units at the rate of 55 paise per unitRemaining additional units may be charged at the rate of 30 paise per unit

Used for majority of residential and small commercial consumers.

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4. Two-part tariff

When the rate of electrical energy is charged on the basis of maximum demand of the consumer and the units consumed

Total charge is split into two components1. Fixed charges2. Running charges

Depend upon the maximum demand of theconsumer

Fixed charges

Depend upon the number of units consumed by the consumer

Running charges

Total charges = Rs (b × kW + c × kWh)

b = charge per kW of maximum demand c = charge per kWh of energy consumed

Mostly applicable to industrial consumers

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5. Maximum demand tariff

Similar to two-part tariff with the only difference that the

maximum demand is actually measured by installing maximum

demand meter in the premises of the consumer.

This type of tariff is mostly applied to big consumers.

Not suitable for a small consumer as a separate maximum demand meter is required

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6. Power factor tariff

The tariff in which power factor of the consumer’s load is taken into consideration

Low power factor increases the rating of station equipment and line losses

Consumer having low power factor must be penalised.

The following are the important types of power factor tariff :1. kVA maximum demand tariff

2. Sliding scale tariff

3. kW and kVAR tariff

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7. Three-part tariff

When the total charge to be made from the consumer is split into three parts viz., fixed charge, semi-fixed charge and running charge

Total charge = Rs (a + b × kW + c × kWh)

a = fixed charge made during each billing period. It includes interest and depreciation on the cost of secondary distribution and labour cost of collecting revenues

b = charge per kW of maximum demand,

c = charge per kWh of energy consumed

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Real Time Pricing (RTP): • RTP is generally an hourly rate which applies to usage on an hourly basis

Inclining Block Rates (IBR):• IBR divides the electricity price into several steps or blocks• The first block of electricity is at the lowest price

Critical Peak Pricing (CPP):• Very high “critical peak” prices (i.e., 3-10 times) are assessed for certain

hours on event days (often limited to 10-15 per year)• Typically combined with a TOU rate, but not always

Time-Of-Use Pricing (TOU):• Different prices for different times[6] Ameren Illinois Power Rate Zone 1. Effective June 1, 2008 [Online]. Available: https://www2.ameren.com/RetailEnergy/RealTimePrices.aspx.

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