Do You Understand Your Utility Bill?

Utility Rates Explained for Industrial & Commercial Facilities

Electric utility rates for industrial and commercial facilities are usually composed of at least two components. 

• One is the “energy rate” or the kilowatt-hour charge, which is related to the fuel that is expended in producing and delivering that energy. 
• A second is the “demand rate”, the kilowatt, or kVA demand charge.  This usually related to the capital investment that must be made to build the generation, transmission, and distribution facilities necessary to provide the electrical energy to the consumer.

Since the capability of your utility’s power generating and distribution system is limited by the current it might carry, the utility’s ability to supply power is affected by the power factor of the load. 

Since the reactive component of current is not registered on the kilowatt-hour meter, some utilities charge for low power factor by applying penalties or surcharges or by applying demand charges on kVA, or apparent power instead of kW, or active power demand. 

These charges differ from utility to utility and are often expensive.

For example, one utility installs a meter capable of measuring reactive kilovolt-amp hours (kVAh) for customers with peak demand over 400 kW, in addition to meters installed to measure kilowatt-hours (kWh).  Interval meters record these values every 15 minutes. 

For the power factor that is used in billing, the kilowatt-hours and reactive kilovolt-amp hours are totaled for the month and a single calculation is performed to provide an average value of power factor for that billing period.  A power factor adjustment of 0.06% is charged for each percentage point below 0.85.  Similarly, a credit is provided for each percentage point above 0.85 (some utilities do not offer a credit).

Another utility may use revenue meters for customers with peak demand for 200 kW that record 15-minute interval values for kWh and kVA and use the maximum value of power factor during the month when calculating a monthly bill and charge a penalty for power factors below 0.98. 

Yet another utility uses kVAh metering (instead of kWh) and effectively bill a customer a power factor charge based on that reading.  Some power companies charge an effective power factor penalty by charging for demand using kVA instead of kW.  The monthly bill is calculated by multiplying the demand by a demand rate ($/kVA)

Save Energy & Money: Improve Your Power Factor

Utility bills must be analyzed carefully to understand the potential savings of improving power factor at a facility. 

Are You Being Charged a Power Factor Penalty?

Obviously the first question to ask is “am I being charged a power factor penalty”? Preferably all bills for the previous year should be collected in order to observe seasonal variations and/or long term trends in consumption. 

Specifically look for the energy charge and the demand charge, if any.  The energy charge is determined by multiplying the number of kilowatt-hours (kWh) of energy consumed in a month times the energy rate in $/kWh.

Reduce Distribution Losses:  Add Capacitors

Distribution losses in a facility can be reduced by the addition of capacitors and the resulting increase in power factor.  These losses are estimated by summing estimates of the transformer losses and cable losses. This reduction is due to the decrease in current flowing through the distribution system and is sometimes referred to as “I²R” losses.

Reducing the current in a distribution system therefore reduces power losses in wire conductors and transformers.  In the absence of harmonics, generally these losses are small (½% to 1½%). Harmonics can increase these distribution losses.  Although the economic benefit from distribution losses alone may not be sufficient to justify the installation of capacitors, it is an additional benefit, especially in facilities with many transformers and long feeders that serve low power factor loads.

Distribution system losses are proportional to the current squared, and since current is reduced in direct proportion to power factor improvement, the losses are inversely proportional to the square of the power factor. 

Voltage improvement

Capacitors will also raise a circuit’s voltage; however like reduction of distribution losses, it is rarely economical to apply them in industrial plants for that reason alone. 

The voltage rise due to the addition of capacitors in power distribution systems with a single voltage transformation is rarely more than a few percent.  Drops in voltage due to low power factor causes current increased current draws.  Although hard to quantify, operating motor-driven equipment under low voltage conditions results in efficiency decreases, motor overheating, and subsequent diminished motor life.

Release of system capacity

The expression, “release of capacity” means that as power factor of the system is improved, the total current flow will be reduced.  This permits additional loads to be added and served by the existing system.  In the event that equipment, such as transformers, cables, and generators, may be thermally overloaded, improving power factor may be the most economical way to reduce current and eliminate the overload condition.

By including power factor correction capacitors in new construction or facility expansions one can theoretically reduce project costs through decreasing the sizes of transformers, cables, buses and switches.  In practice, however, ampacity ratings are a function of full-load equipment values and size reductions may be precluded by electrical codes.

Harmonic current considerations

We are intentionally assuming that a facility does not have significant harmonic currents present. Harmonics, their impact on true power factor, and the economics of harmonic filtering are a separate topic within their own right.  However, some caution must be taken when applying capacitors in a circuit and this topic deserves some consideration when applying capacitors to improve power factor.

Although capacitors themselves do not generate harmonics, problems can be created when capacitors for power factor correction improvement are applied to circuits with nonlinear loads that interject harmonic currents.  Those capacitors may lower the resonant frequency of that circuit enough to create a resonant condition. 

Resonance is a special condition in which the inductive reactance is equal to the capacitive reactance. As resonance is approached, the magnitude of harmonic current in the system and capacitor becomes much larger than the harmonic current generated by the nonlinear load.  The current may be high enough to blow capacitor fuses, create other “nuisance” problems or develop into a catastrophic event. 

A solution to this problem is to detune the circuit by changing the point where the capacitors are connected to the circuit, changing the amount of applied capacitance or by installing filter reactors to a capacitor bank.

Sources of harmonic currents include:

• variable speed drives
• frequency changers for induction furnaces
• soft starters for motors
• light dimmers
• electronic ballasts for arc-discharge lamps, as well as switch mode power supplies used in instrumentation, PC’s, televisions and uninterruptible power supplies. 

If a facility has more than 15% non-linear load, a harmonic study should be performed before applying capacitors.  The presence of harmonics can affect the proper operation of machinery, equipment, and processes, which can have an economic impact.  The results of problematic harmonics need to be considered when evaluating operating costs.

Custom Energy-Saving Power Solutions to Save Money

Staco Energy designs custom energy saving power solutions that will save you money.  Contact us to learn how we can reduce your industrial / commercial energy costs.