There are as many billing methodologies as there are number of Utilities. Some of the billing methodologies are simple while others are not very easily comprehensible and very complicated.

There are many factors considered by the Utilities while they design their billing strategy. Some of the factors that are considered by the Utilities are listed below:

1.    Cost per unit of electricity generated (Normally Rs./kWh, £/kWh, €/kWh, $/kWh). It can either be fixed rate or can be variable. The variable nature can be in the nature of quantity or time of use. The quantity difference can be either in the form of slab or block price. In slab price the quantity of consumption is broken up into various slabs and each slab is priced at different rates. In block price, the pricing is done for the entire quantity based on the block the consumption has reached. In the time of use pricing, the 24 hour period may be divided into several slots and the consumption during each slot is billed at different rates. It is to be noted that the prices do not change intraday. Another option is to have real time pricing mechanism, by which the prices keep changing during pre-defined intervals.

2.    Cost per unit of Reactive energy generated, in a few cases (Normally Rs./kVAhr, £/kVAhr, €/kVAhr, $/kVAhr).

3.    Cost per unit of Real energy generated, in a few cases (Normally Rs./kVAh, £/kVAh, €/kVAh, $/kVAh).

4.    Power factor penalty / incentive

5.    Fuel Adjustment charges to account for the variation of cost of fuel used for power generation (Normally Rs./kWh, £/kWh, €/kWh, $/kWh). This is to accommodate the change in price of the fuel. This is more applicable to utilities which depend on external sources for their fuel requirement. Sometimes utilities which procure power from external sources also levy the fuel adjustment charges.

6.    Capacity charge to account for the capital expenditure incurred due to setting up of the power plants (Normally Rs./kW, £/kW, €/kW, $/kW or Rs./MW, £/MW, €/MW, $/MW or Rs./kVA, £/kVA, €/kVA, $/kVA or Rs./MVA, £/MVA, €/MVA, $/MVA) to reflect the interest and depreciation

7.    Transmission and distribution charges (can be a fixed rate irrespective of consumption or Rs./kWh, £/kWh, €/kWh, $/kWh). This charge has to accommodate two charges namely the transmission and distribution infrastructure charge and the other for the losses incurred during transmission and distribution.

8.    Meter operation, maintenance and reading charges. It could be a fixed charge based on the meter technology which will determine how the meter is maintained and read. With the advent of Smart Meters the concept of physically reading the meter would become obsolete, except in special circumstances

9.    Billing and collection charges. As of now we can say that there are no utilities which levy such a charge. But definitely there is a cost associated with it, which is normally bundled with other charges.

10.Surcharges to accommodate Carbon tax, if any.

11.Discounts to accommodate feed-in tariff (consumer’s own generation)

12.Discounts on account of subsidies given to the consumers. It can be per unit of consumption or fixed charge.

13.Arrears, if any

14.Taxes, if any

The Utility industry is present in various forms. At one end there are very big vertically integrated Utilities taking care of all operations right from fuel purchase, generation, transmission & distribution, meter reading, billing, collection etc. And at the other end there are utilities which are very much fragmented with operations such as generation, transmission & distribution taken care of by different entities.  In both cases, mostly the end consumer gets a single bill, encompassing all the costs. In the fragmented scenario, called as deregulated or unbundled scenario, there will be a sizable inter-company data exchanges calling for sophisticated computing resources. At present, the general trend is more towards unbundling and deregulation, due to not so satisfactory performance of vertically integrated utilities. It is yet to be seen whether deregulation is for better or worse. There is a mixed opinion. Market forces are coming into play in the Utility sector.

In case of vertically integrated utilities, there can be two ways to bill the customers. One is to club all the costs to a per unit price landed at the customer end. And the other way is to mention separately and bill separately. The former is very simple from the point of customer to evaluate; whereas the latter is more transparent. In case of unbundled utility scenario, there is a generally a need to specify all the charges separately.

Further in the unbundled scenario, there will be intercompany billing such as

1.    Generation Company billing the Supplier Companies

2.    Transmission and distribution companies billing the Generation companies for transmission and distribution charges. In scenarios where there are transmission and distribution companies are separate, the transmission companies bill the generation company the wheeling charges. The distribution company will bill the suppliers for wheeling charges.

3.    If there are metering companies also available then metering company would bill the supplier for the consumer meter read like payment per consumer meter read.

Transmission and Distribution is a natural monopoly because of the geographical constraint. However there can be scenarios where there will be two or more transmission companies involved before the electricity reaches the consumer, making the intercompany exchanges complex. Similarly there can be two or more distributors also involved.  These scenarios arise due to phased development of network in the geographical areas. Also in cases where the generator and supplier are located at very far apart and their links, cutting across the networks of several transmission and distribution companies, wheeling bills will be generated by different companies against the generator / supplier.

The transmission and distribution charges can either be fixed charge irrespective of the location of the consumer and the generator. Or it can be based on the distance between the consumer and the generator.

From the above it can be inferred that electricity billing strategy is left to the imagination of the Utilities and their regulators, sometimes making it very complex for the understanding of the end consumer. With deregulation and the entry of competitive  retail players tariff war has been set and retailers have become very innovative in their tariff resulting in the consumers overwhelmed with the multitude of tariffs to choose from.

It is felt that there is a need to simplify the business of billing electricity consumption which a common consumer can understand. A suggested approach is given below. It will involve both commercial and policy level changes.

The first step is to do away with multiple components that are used for billing and just a single parameter for billing, namely energy consumption. Most of the utilities world over use active power consumption, namely kWh, with an assumption the power factor as 0.8 to 0.9. This practice is followed because of technological restrictions due to the availability of only Ferranti Electromechanical Energy Meters, which can measure only active energy. The present trend in the utilities is to replace all the electromechanical meters with Electronic Static Meters which have several advantages compared to the electromechanical meters. It is to be noted that static meters can measure all types of energy namely, active, reactive and real or apparent energy. Ideally billing needs to be done based on the real or apparent energy and not on active energy only, because generation cost is based on real energy. With the billing in kWh, there is no incentive for the consumers to have high power factor. If kVAh billing is introduced then it would even prompt the manufacturers of electricity consuming equipments with high power factor, leading to the production and use of more energy efficient equipment.

All the power plants need to arrive at a Levelised Cost of Generation (LCG) which will incorporate all the costs taking into account Levelised Capital cost, O&M Cost, Capacity Factor, etc. and arrive at Cost / kVAh. The pricing / kVAh may also include a positive inflation adjusted return to attract investments and for sustainability. The grid operator can further mark up a cost to include the Levelised grid charges, meter reading charges, etc

Let us consider a simplified scenario. We will take 8 power generation plants with their LCG in the range of 1 to 8. We will also consider 8 consumers who are willing to pay a price of 1 to 8 based on the firmness of supply, that is, the consumer who is willing to pay 8/kVAh will get the most un-interrupted power supply. Now the question arises, how to connect the consumers to the grid and how to manage their connectivity. In every grid there is a desired frequency level, say 50 Hz or 60 Hz with an accepted variation of say, +/-2 Hz. We shall consider the 50 Hz case, with an assumption that the accepted range is 48 to 52 Hz . It is to be remembered the frequency is the indirect measurement of load on the grid with the lower frequency indicating over load and higher frequency under load. One of the most important role of the grid operators is to maintain the frequency around 50 Hz. The following table and diagram illustrates how the consumers can be matched to the generators:

The above table and diagram is a very simplified for illustrative purpose only. It only gives an idea how the concept works. For example when the prevailing frequency is between 49 and 49.5, the generators having LCG 1 to 6/kVAh and consumers having Consumer price of 6 to 8/ kVAh would be connected to the grid. When the frequency falls between 48.5 and 49 the generators having LCG 1 to 7/kVAh and consumers having Consumer price of 7 to 8/ kVAh would be connected to the grid.

With this set-up, we are linking the commercial pricing to frequency of the grid.

Now let us see how the supply side and demand side management takes place in the system. In the system we have to introduce a frequency based relay at the point of connection. The relay will make and break the connection depending on the frequency. The ultimate result is that the pricing is based on the firmness of the supply. The firmness of supply is derived from the generation of electricity from plants having high LCG.

To explain the concept better let us take a simple household scenario. A family of 4 with parents and two school going children. In the month of March the children are having their examination. Assume they are at present in the in the frequency band of 49.50 to 49.99, which means their per unit is charged at 5/kVAh. To ensure uninterrupted supply during examination they can make an application to the utility to change their pricing to 8/kVAh. The utility can change the setting of the frequency relay to the under frequency cut-off of 48 Hz. By paying a higher price supply to the family is more firm, during the examination period. In the month of April when the exams are over the family do not require that much firm power. Then they can request the utility to bring back their tariff to 5/kVAh or at any desired price. The utility can make a suitable change in the under-frequency relay to reflect the pricing.

Let us take another example of agriculture pumpsets, which require low tariff but is very flexible for demand side management. So they can be set for a pricing of 1/ kVAh and the pumpset will run at least cost during non-peak hours.

The advantages of this method lies in its simplicity at all levels, both technical and commercial. We do not require very sophisticated instrumentation to achieve Time of Use / Real Time Pricing. A simple frequency based relay would suffice. Both demand side and supply side management are easily managed in a transparent way. The tariff and billing becomes very easy for the customers to follow.

Now let us see some of the issues that may raise when this is followed. Let us take the example of Railways. They require uninterrupted power, naturally leading to a price that is the highest. Being a public service we may expect it to be billed at a subsidised rate at a low tariff. Same is the case with essential services like hospitals, public places, etc. So we may have to set them at low frequency but billed at low tariff.

Another situation is the case of power generation from high cost generators whose generation cannot be controlled like wind, solar, etc. In such cases we have to keep them at high frequency settings even though they are high cost generators.

This system will also be highly useful to take care of consumers who have very poor credit ratings and those who have already have huge payment arrears due. Such consumers can be put on low tariff with high frequency settings.

This is a simple extension of Availability Based Tariff (ABT) which is already prevalent in India. ABT is a system of billing of unscheduled consumption and generation of bulk consumers and generators to maintain grid discipline. In reality, both consumption and generation cannot be accurately predicted. This system automatically takes care of this uncertainty, with price of electricity directly linked to the firmness of supply. The system helps to achieve targeted and voluntary load shedding instead of forced load shedding as is presently done presently during peak consumption / low generation times.

As we can see that in the above method that the entire consumption is billed at a single price, which for some utilities / consumers may seem a little unfair. This has got an advantage that the metering requirement very simple with a single register to register the kVAh consumption. Another disadvantage is that of automatic disconnection, causing inconvenience, especially when the system frequency is volatile. There is an alternative to this set-up but it necessitates a little complexity in the metering.

The set-up would require a multi-register meter. The frequency based relay would be required to be inbuilt in the meter itself. Each register needs to be configured to record the consumption during different frequencies. The consumption recorded by different registers can be billed at different prices. The consumers can have a simple frequency meter display at a conveniently visible location in their premises so that they can decide when they can consume or not to consume. Also wherever possible, frequency based programmable appliances can be used by the consumers, to see to that they are operating only when the frequency is appropriate.

In both the methods we can see that there is a margin available for profit. The consumption done by the consumers are billed based on the frequency whereas the generators are paid for the energy generated based on their levelised cost of generation.

The advantage of this approach is that we require a very simple infrastructure in comparison to the interval meters which involves voluminous meter reading data transfer requirement and complex billing involving huge computational requirement to implement the Real Time Pricing.

Both the methodologies described above leaves a scope for profit margin for the utilities. Let us assume a scenario where the frequency is in the lower band, say 48.5. At that point of time the payments that need to be made to the generators are based on their LCG, wheras the payments that would be realised from the end consumers would be based on the pricing corresponding to the highly priced frequency of 48.5. This profit margin can be used for funding the maintenance of the grid and related infrastructure including meters. At the higher frequency band, say 51.5, the power plants having high LCG are cut-off from the grid, creating a no loss no gain system.

The multi-register meters have helped us to take care of the demand side inconvenience of consumers getting disconnected from the grid. Similarly we need to see how the inconvenience caused to the generators due to getting disconnected from the grid can be handled. The nature of electricity is that it cannot be stored easily. So each power plant have to find their own suitable method to store the energy generated during non-peak hours. They have find out whether methods such as pumped storage system are suitable for them. Or they can also find some local applications wherein they can utilise the excess energy. As such it is the generators with high LCG face this problem on a larger scale, hence it is better if they try to adopt technology which would enable quick start / stop operation.

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