Understanding On-Farm Utility Costs and Billing

Farm owners can often reduce the cost of energy after careful review of utility bills and making changes to improve energy efficiency. However, reading and understanding utility bills is often a frustrating and daunting task. Let’s discuss some basic guidelines to help decipher charges for electricity and natural gas. Once costs are defined, areas of potential savings may include:

Changing the rate tariff – Utilities have different service classifications, each with its own rate structure or tariff. A utility may not necessarily advise the farmer that there may be more suitable billing plans. Discussing your farms needs with utility personnel may reveal options such as changing to tariffs with off-peak billing, interruptible service provisions, or other reductions for specific circumstances.
Reducing demand charges – Whenever the cost for demand charges is a significant portion of the total bill, it is an indication that there may be large equipment that operates for relatively short periods of time, e.g., an irrigation pump. When demand charges are large, examine opportunities for reducing peak demands by using smaller equipment, shifting equipment operation to off-peak hours or using variable speed controllers for large motors.
Lowering energy use – High rates of energy use as compared to customers with similar energy needs may indicate an opportunity to save costs by reducing energy consumption. An analysis and review of energy use patterns help identify opportunities for savings. In some cases it may be economically beneficial to pay for a professional energy audit.
Selecting a different supplier – Utilities, particularly electric companies, often allow customers to purchase energy from different suppliers. Although most pricing will be competitive, some suppliers may charge slightly less for energy. Alternatively, consumers may choose to select a supplier based on the nature of their energy portfolio, even when costs may be slightly higher. Some suppliers may provide some or all of their energy from renewable sources. Whatever the basis for selecting an alternate supplier (more sustainable sources, lower cost, more diverse portfolio, etc.), carefully review the information that suppliers provide. The utility can typically direct farm owners to detailed information on energy suppliers.

Reading Your Bill

In reviewing utility bills it helps to realize that at least three types of charges typically appear on bills:

Usage fees
Demand charges
Fixed and other miscellaneous charges

There may be multiple items in each of these three categories. For example, a 2008 electric bill (Table 1) shows eight charges based on usage, and two based on demand. This bill also shows a credit for interest earned on the security deposit and a fixed customer charge.

Usage is the amount of energy used during a billing period. For electricity, this amount is expressed in kilowatt-hours, which may appear as kW-hrs, KWH, kWh or something similar. For natural gas, usage may be expressed in therms, cubic feet, or both. A therm is 100,000 Btu (British thermal unit), or approximately 100 cubic feet, depending on the actual gas composition which varies according to season and the origin of the gas.

Usage for a billing period is the difference between the present and previous meter readings. The value may be based on meter readings (actual usage) or estimated. When a utility does not have access to the meter during a billing period, it typically uses estimated values. Several consecutive periods of estimated readings can affect charges in ways that may not be in the consumer’s best interest, so it is usually worth ensuring utilities are not prevented from reading meters for extended periods.

Demand is the rate at which energy is consumed, typically expressed as the maximum rate during a particular period. Understanding demand charges is made more complicated by the fact that different utilities use different formulas to calculate maximum demand. Demand for electricity is expressed in kilowatts (KW or kW). Demand for gas could be measured in cubic feet per minute (cfm) or therms per minute. Since measuring gas flow rates is expensive and requires significant maintenance, gas demand is often expressed as average flow for a period of time, often for a month.

To further complicate billing, usage or demand charges can change based on a number of factors, including time of day, time of the year, the amount of usage or size of the demand and what the energy is used for.

Unit Cost of Energy. Knowing the unit cost of energy is a useful way of establishing whether energy costs are reasonable. To calculate the unit cost, divide the total charges by the usage. For the sample electric bill shown in Table 1, dividing the total charges for the period ($383.78) by the total kilowatt-hours (2,322) yields a cost of 16.5¢ per kilowatt-hour. Similarly, the unit cost of gas in the sample bill shown in Table 2 is $1.34 per therm. If these costs are out of line with what similar operations are paying, changes in billing rates (tariff/service classification) or equipment operating schedules can often reduce costs.