7 Tariff

TARIFF
Tariff : Rate at which electrical energy is supplied to a consumer
TYPES OF TARIFF:
1. SIMPLE TYPE OF TARIFF

= Annual fixed charges+ Annual running charges
Total no of units supplied to the consumers annually
 Fixed rate per unit of energy consumed

 No distinction between bulk consumers and domestic
consumers
 Cost per unit calculated will be more
2. FLAT RATE TARIFF
Different types of consumers are charged at different rates

 Consumers are grouped into residential, commercial etc.
 Rates for each type of consumer is arrived at by taking into
account its load factor and diversity factor
Fig: Flat demand rate

z- Total cost
y- Energy consumed
2. Straight meter rate:
Simplest form of tariff

 Charge per unit is constant
 Charge depend on energy used
 Commonly used for residential and commercial consumer
 Does not encourage the use of electricity
3. BLOCK RATE TARIFF
A given block of energy is charged at a specified rate and the

succeeding blocks of energy are charged at progressively
reduced rates.
 Provides an incentive to consume more electrical energy
 Increases the load factor of the system
 Cost of generation per unit is reduced
Fig: Block meter rate

z- Total cost
y- Energy consumed
4. TWO PART TARIFF (Hopkinson demand rate)
Rate of energy is charged on the basis of maximum demand of

the consumer and the units consumed.
Total charge= Fixed charge + Running charge

Fixed charge based on maximum demand
Running charge based on units consumed
Total charge= Rs (a*kW + b*kWh)

a : Charge per kW of maximum demand
b : Charge per kWh of energy consumed
 Maximum demand is taken as the connected load

 If the consumer uses electricity sparingly or if he is out of
station, unnecessarily he has to pay the fixed charge
Fig: Two part tariff
z- Total cost
y- Energy consumed
5. MAXIMUM DEMAND TARIFF
Similar to two part tariff; but the maximum demand of the

consumer is measured by a ‘Maximum Demand Meter’
installed at the premises of the consumer
6. POWER FACTOR TARIFFS
Power factor of the consumer’s load is considered.
I = P/ (V cosΦ)
Consumer having low power factor is penalized
a) kVA Maximum Demand Tariff

• Modified form of two part tariff
• Fixed charges based on maximum demand in kVA and
not in kW
• Lower the pf, greater will the contribution towards the
fixed charge.
• Encourages the consumer to operate their appliances at
improved power factor
b) Sliding Scale Tariff or Average Power Factor Tariff
• An average power factor, say 0.8 is taken as reference

• Additional charges on lower pf
• Discount on higher pf
c) kWh and kVARh Tariff
• Both active and reactive power demands are charged

separately
• Lower the pf, more the reactive power
7. THREE PART TARIFF (Doherty rate)
Total charge= Rs ( a + b*kW + c* kWh)

a: Fixed charge made during each billing.
It includes interest and depreciation on the cost of secondary
distribution and labour cost of collecting revenue as well as
meter rent
b : Charge per kW of maximum demand
c : Charge per kWh of energy consumed
Fig: Three part tariff

z- Total cost
y- Energy consumed
8. TIME-OF-DAY (T.O.D)
 Charges extra for electricity during periods of high

demand and offers a discount rate during off-peak hrs.
The incentive encourages the consumer to use loads
during off-peak, lower rate periods, with the reward of
lower monthly electricity bill.
Cost Analysis
1. Capital Cost or Fixed Cost
• Initial Cost
Factors affecting cost of generating units
 Location of plant
 Time of construction
 Size of units
 Number of generating units
• Interest
• Depreciation
 Straight line method
 Percentage method
 Sinking fund method
 Unit method
2. Operational Cost
 Cost of fuels
 Labour cost
 Cost for maintenance and repair
 Supervision
Depreciation
i. Straight line method
• Simplest and commonly used method
• Life of equipment or enterprise is assessed first and residual or salvage
value is also estimated life
• Rate of depreciation is uniform throughout the life of the equipment
• Depreciation Formula for the Straight Line Method:
 Depreciation Expense = (Cost – Salvage value) / Useful life

• Example: Consider a piece of equipment that costs $25,000 with an
estimated useful life of 8 years and a $0 salvage value. The depreciation
expense per year for this equipment would be as follows:
• Depreciation Expense = ($25,000 – $0) / 8 = $3,125 per year

Double Declining Balance Depreciation Method
• Results in larger expense in the earlier years as opposed to the later years
of an asset’s useful
• Assets are more productive in its early years than in its later years
• Double-declining-balance method, the depreciation factor is 2x that of a
straight line expense method
• Depreciation formula for the double declining balance method:
 Periodic Depreciation Expense = Beginning book value x Rate of

depreciation
 Example: Consider a piece of equipment that costs $250,000 with an
estimated useful life of 8 years and a $2,500 salvage value. To calculate
the double declining balance depreciation, set up a schedule:
Units of Production Depreciation Method
• Depreciates assets based on the total number of hours used or the total
number of units to be produced over its useful life
• Depreciation formula for the Units of Production depreciation

method:
 Depreciation Expense = (Number of units produced / Life in
number of units) x (Cost – Salvage value)
 Example: Consider a machine that costs $25,000 with an estimated total

unit production of 100 million and a $0 salvage value. During the first
quarter of activity, the machine produced 4 million units.
 Depreciation Expense = (4 million / 100 million) x ($25,000 – $0) =

$1,000
Sum-of-the-Years-Digits Depreciation Method
A higher expense is incurred in the early years while lower expense is incurred in
the latter years of the asset
• Depreciation formula for the sum-of-the-years-digits method:
 Depreciation Expense = (Remaining life / Sum of the years digits)

x (Cost – Salvage value)
 Example: Consider a piece of equipment that costs $25,000 with an
estimated useful life of 8 years and a $0 salvage value. To calculate the
sum-of-the-years-digits depreciation method, set up a schedule:
 Depreciation Base = Cost – Salvage value
 Depreciation Base = $25,000 – $0 = $25,000

Summary of Depreciation Methods
• Below is the summary of all four depreciation methods from the examples
above.
• Summary Table of Depreciation by Method

1. The monthly readings of a consumer’s meter are as
follows: Maximum demand = 50 kW, Energy consumed
= 36,000 kWh, Reactive energy = 23,400 kVArh. If the
tariff is Rs.80/kW of maximum demand plus 8ps per
unit plus 0.5 ps per unit for each 1 % of pf below 86%,
calculate the monthly bill of the consumers.
2 Calculate annual bill of a consumer whose maximum

demand is 100 kW, pf = 0.8 lagging and load factor =
60%. The tariff used is Rs.75 per kVA of maximum
demand plus 15 paise per kWh consumed.

7 Tariff

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TARIFF

Tariff : Rate at which electrical energy is supplied to a consumer

1. SIMPLE TYPE OF TARIFF

 Fixed rate per unit of energy consumed

Different types of consumers are charged at different rates

Fig: Flat demand rate

Simplest form of tariff

A given block of energy is charged at a specified rate and the

Fig: Block meter rate

Rate of energy is charged on the basis of maximum demand of

Total charge= Fixed charge + Running charge

Total charge= Rs (a*kW + b*kWh)

 Maximum demand is taken as the connected load

5. MAXIMUM DEMAND TARIFF

Similar to two part tariff; but the maximum demand of the

Power factor of the consumer’s load is considered.

a) kVA Maximum Demand Tariff

• An average power factor, say 0.8 is taken as reference

c) kWh and kVARh Tariff

• Both active and reactive power demands are charged

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

Fig: Three part tariff

 Charges extra for electricity during periods of high

• Depreciation Formula for the Straight Line Method:

 Depreciation Expense = (Cost – Salvage value) / Useful life

• Depreciation Expense = ($25,000 – $0) / 8 = $3,125 per year

 Periodic Depreciation Expense = Beginning book value x Rate of

• Depreciation formula for the Units of Production depreciation

 Example: Consider a machine that costs $25,000 with an estimated total

 Depreciation Expense = (4 million / 100 million) x ($25,000 – $0) =

 Depreciation Expense = (Remaining life / Sum of the years digits)

 Depreciation Base = Cost – Salvage value

 Depreciation Base = $25,000 – $0 = $25,000

• Summary Table of Depreciation by Method

2 Calculate annual bill of a consumer whose maximum

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Total charge= Rs (akW + bkWh)

Total charge= Rs ( a + bkW + c kWh)