Supply & Demand, Kilowatts and Hours

The growth of electric utilities and their distribution systems from the 1880’s through the 20th century – was astounding. Both the Edison DC service and Westinghouse (Tesla) AC service distribution systems were being installed all over America.

Supply was measured in kilowatt-hours (kwhrs) which repaid the utility for its various costs of service such as labor, materials, fuel, taxes and transportation of product to consumer.
In a famous U.S. Supreme court case, Smyth V. Ames, U.S. 361 (1898) public utilities were found to be entitled to a fair rate of return based upon its rate base which included all things used and usable to provide service to the public.

The kwhr electric revenue was considered adequate until studies related to electric rates in the 1930’s showed consumers used most power only during certain times of the day and a peak load had to be provided even if that load only occurred for a few hours a day. The utility’s wires had to be there to meet the peak. - That left a lot of time when the wires were relatively idle – not producing revenue.

Then the idea developed that consumers should be induced to use power during other – or “off peak” - hours to spread out the use – reducing the peak demand. Not surprisingly, most consumers couldn’t change their patterns which were based on fixed hours of work or operations.

So – how about a charge based on the peak use of each customer as well as the kwhrs?
Excellent idea, said the utilities, and a few inventors devised a special meter to measure a consumer’s peak load while measuring its kwhrs. (Called “demand meter”)

A peak demand could happen for as little as a few seconds, as in turning on a furnace or air conditioner. So in fairness (thanks also to Smyth V Ames) it was decided that a consumer’s demand should cover a 15 or 30 minute interval. In some states the 15 minute interval is used and in other, such as NY, a 30 minute interval determined by taking the highest two consecutive 15 minute demands for the billing period.

The relationship between the energy (kwhr) use and the demand in kilowatts (Kw) is called a “load factor.” That is, how many hours use of the measured demand would it take to arrive at the actual kwhrs measured for the month?

A usage of, say 3,000 kwhrs with a demand of 10.0 Kw would indicate a load factor of 300 hours (kwhrs per kw) or 41.6% of a 720 hour month (30 days @ 24hrs/day)

Further if the consumer used 3,000 kwhrs with a demand of 7.5 Kw the load factor would be 400 hours or 55.5% and the utility wires would be less burdened by 2.5 Kw

As a result rates were developed based on rewarding good load factors and “punishing” ” poor” ones. Demand charges in some cases became almost half of a commercial electric bill.

Over the years the ever increasing costs of fuel and taxes had impact on the energy charge portion of electric bills but demand charges remain an item that continues to ‘demand’ attention.
More on rate design and its impacts on energy efficiency and the economy in later discussions