How Much Does Electricity Consumer Pay?

Problems of determining the amount of the energy and the calculation of its value.

Ivan Eliseev

Ivan Eliseev
Former Head of practice

After having entered into a contract with supplier, contractor or performer the first question any entrepreneur asks himself is "How much will it cost me?"

In the traditional spheres of commodity exchange when the contract provisions are expressed with preciseness such question is quite easy to settle. However, when it comes to exchange of unusual commodities like electric power the principal issue of commodity price and quantity is quite complicated for a layman.

Generally, the difficulties are due to the absence of free pricing in relationships connected with electrical power: the parties are not free to negotiate the price unless otherwise provided. Over and above, the situation is complicated by availability of conventional manners for commodity quantity measurement and definition of its other characteristics. Let us examine these matters up close.

Issue 1. How to Count?

There are several methods to measure electricity consumption:

  • on the basis of metered values (accounting meter method),
  • either on the basis of contract between supplier and consumer or in accordance with the provisions of the normative legal act (computational method).

Every one pays exactly for amount of electricity he consumed according to the metered values except as otherwise provided by special normative legal acts or agreement between the parties. It is a general provision set by the Art. 544 of the Civil Code of the Russian Federation.

As can be seen, this article makes rather interesting provision regarding that the parties are authorized to set in the contract a different method for calculation of power or other resource consumption except as otherwise provided by special normative act.

In electric power industry the Rules for Operation of Retail Electric Power Markets during Transition Period of Reforming of Electric Power Industry (approved by Governmental Order No 530, dated August 31, 2006. Yet the most curious is that the Rules do not expressly provide that when an electricity accounting meter is available the amount of electricity consumed must be necessarily computed on the basis of accounting meter method. Further, para. 136 of the Rules sets out that the electricity consumed is paid on the basis of values provided by electricity accounting meter and (or) computational method. Computational method is defined in accordance with the rules for commercial electricity accounting on retail electricity markets.

The foregoing rules have not yet been approved; therefore, even in event of availability of electricity accounting meter there is an option to calculate the amount of electricity consumed on the basis of either accounting meter method or computational method.

If there is no electricity accounting meter at all or it failed the amount of electricity consumption for each consumer category is calculated differently. Thus, the ordinary consumer pays for the amount provided by the contract or calculated on the basis of computational method provided by paras. 145 and 146 of the Rules.

Whereas the consumer is a citizen, the normative standards for consumption of electricity supply utility services. For the owner of a non-residential premise in apartment building the amount of energy consumed is calculated on the basis of computational method being consented with the person with which the supply organization entered into a contract. The amount of energy consumed is calculated on the basis of capacity and operation mode of power receivers.

Issue 2. Electricity Losses

There is one more item consumer has to pay for: electricity losses incurred in his network, and more specifically when an electricity accounting meter was not installed at a boundary point. Here the Rules manifest themselves as being incomplete. They do not provide for inclusion of the amount of loss in the amount of consumption that the customer has to pay for. Nevertheless, if we try to be precise, para. 143 of the Rules provides for the electric grid output and not the volume of electricity consumed.

In such case the parties must either use the accounting meter method and adjust its values by rounding up in accordance with their agreement or calculate the volume of transmission losses.

Issue 3. Estimating Electrical Capacity Value

Electricity consumers do not pay only for the electricity consumed. Such payment also includes capacity fees. Estimated value of electrical capacity consumed depends on the choice of applied tariff. For instance, a consumer to whom a double-rate tariff including capacity rate and electricity rate applies pays for capacity being calculated in the following way.

In presence of hourly consumption accounting meter the volume of capacity consumed is calculated as a ratio of the sum of the maximum hourly amounts of the electricity consumed within the scheduled peak hours set in the local time by the transmission system operator to the amount of working days in the accounting period on the basis of a 5-day working week.

In default of accounting meter the volume of capacity within the scheduled peak hours is estimated on the basis of the capacity hourly values calculated as a total electricity consumption divided proportionally to the supplier's consumption profile hourly values.

Yet if either a tariff differentiated with respect to the number of capacity consumption hours (NCCH) or one-rate tariff differentiated with respect to the time of day apply to consumer, he does not separately pay the capacity fee. However, the value of estimated capacity affect some consequences of applying particular tariff rate. For example, the choice of the tariff rate differentiated with respect to the NCCH will depend on both the value of capacity consumption within the scheduled peak hours in winter and total annual consumption.

The estimation of fee for each electricity consumer slightly differs if to provide electricity supply the consumer has entered a separate purchase sale contract with the supplier and the transmission contract with the grid company. The volume of the transmission services is estimated in relation to the values of electricity and/or capacity consumed.

In case if a double-rate tariff including network maintenance rate and electricity loss fee rate applies, the customer estimates both the volume of the capacity and electricity consumed. Naturally, the main question is how to estimate the capacity volume on the basis of which the transmission services will be paid.

In this context the law and being more specific subpara. "a" of para. 14 of the Rules for Non-discriminatory Access to the Electricity Transmission Services and the Provision Of Thereof provides that the contract sets the committed capacity which serves as electricity consumption level. The consumer exceeding this level by 10% on a regular basis must pay either the factual capacity within the accounting period or the maximum capacity to the extent that such consumer has a connected capacity of over 750 kVA.

This provision entitles to believe that transmission services fee is not connected with the volume of work/services factually provided but with the specific value set by the contract. This value does not comply with the laws of physics. For consumer it means that even if his consumption is rather low and accordingly he does not need all of the committed capacity, anyway he will pay for the transmission services the amount due for the committed capacity. In view that this situation is absolutely disadvantageous for the customers many of them have negotiated provision for settlement not on the basis of committed but factually consumed capacity. The lawfulness of such provision is quite doubtful when taking into account the Art. 544 of the CC of the RF which allows to pay for actual consumption except to the extent otherwise provided by the special normative legal acts.

The situation is completely different when the one-rate tariff for electricity transmission services applies to the customer. In such case the customer pays for the volume of the services he actually consumed.

Issue 4. How to Set Price?

Since the electricity market is subject to gradual price deregulation, although it does not mean that all the electricity suppliers are free to set prices the pricing system based exclusively on the government-set prices begins to lose ground.

Naturally it is not convenient for the customer who presently instead of reviewing the tariff menu in the normative legal act of the regulating authority additionally has to examine the websites of the Administrator of the Trading System of the wholesale market, guarantee supplier and for the sake of good order the website of the regulating authority.

In order to estimate the price for the volume of electricity consumed the customer has to estimate both the volume he has to pay for on the basis of the tariff and the volume being paid for on the basis of the wholesale electricity market price. Actually it will suffice to examine the website of your guarantee supplier. However, if there are any doubts about the accuracy of the estimated ratio of volumes to pay for on the basis of the tariff to the volume to be paid on the basis of the wholesale wholesale prices it is quite a difficult task for the customer to figure out if his doubts are justified.

It should be noted first that the consumer can easily influence the electricity price including wholesale price by choosing the appropriate tariff option, and second, strange though it might sound he can influence the tariff rate itself by choosing the counterparty.

As for the first option under the contract with the guarantee supplier and the supplier serving individual customers the customer has a right to choose the tariff option: double-rated, single-rated, etc. Furthermore, he has a right to choose the tariff option for the next period of regulation by giving a prior notice at least one month before the new tariffs come into force.

The second aspect of the pricing was created by the established judicial practice holding that the parties have a right to negotiate the particular rate from the tariff menu. And even if the rate does not correspond to the actual tariff group of the customer, the contractual tare applies. In other words, if the customer when negotiating with the supplier has chosen the tariff he was not forced to, he will have to pay for the electricity on the basis of the tariff he chose.

And finally, when choosing a retail company which is not serving individual customers as supplier the customer has a possibility for negotiating not only a strictly determined price for the time of the contract but also he is free to negotiate the price without interference from any third party.

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