College of Electromechanical Engineering

Power Systems (EMSE312)

Course I
Lect.4 (Tariff)
By:
Prof. Dr.
Mohammed K. Al-Saadi

Lec. 4 Power Systems (EMSE312) Tariff

 Tariff
The rate at which electrical energy is supplied to a consumer is known as tariff.
Although tariff should include the total cost of producing and supplying electrical energy plus the profit, yet it cannot be the
same for all types of consumers. It is because the cost of producing electrical energy depends to a considerable extent upon
the magnitude of electrical energy consumed by the user and his load conditions. Therefore, in all fairness, due consideration
has to be given to different types of consumers (e.g., industrial, domestic and commercial) while fixing the tariff.

Objectives of tariff
Like other commodities, electrical energy is also sold at such a rate so that it not only returns the cost but also earns
reasonable profit. Therefore, a tariff should include the following items :
(1) Recovery of cost of producing electrical energy at the power station.
(2) Recovery of cost on the capital investment in transmission and distribution systems.
(3) Recovery of cost of operation and maintenance of supply of electrical energy e.g., metering equipment, billing etc.
(4) A suitable profit on the capital investment.

Characteristics of a Tariff
A tariff must have the following desirable characteristics :
(1) Proper return : The tariff should be such that it ensures the proper return from each consumer. In other words, the total
receipts from the consumers must be equal to the cost of producing and supplying electrical energy plus reasonable profit.

Lec. 4 Power Systems (EMSE312) Tariff

 Tariff
(2) Fairness : The tariff must be fair so that different types of consumers are satisfied with the rate of charge of electrical
energy. Thus a big consumer should be charged at a lower rate than a small consumer. It is because increased energy
consumption spreads the fixed charges over a greater number of units, thus reducing the overall cost of producing electrical
energy.
(3) Simplicity : The tariff should be simple so that an ordinary consumer can easily understand it. A complicated tariff may
cause an opposition from the public which is generally distrustful of supply companies.
(4) Reasonable profit : The profit element in the tariff should be reasonable. An electric supply company is a public utility
company and generally enjoys the benefits of monopoly.
(5) Attractive : The tariff should be attractive so that a large number of consumers are encouraged to use electrical energy.
Efforts should be made to fix the tariff in such a way so that consumers can pay easily.

Types of Tariff
There are several types of tariff. However, the following are the commonly used types of tariff :
1. Simple tariff. When there is a fixed rate per unit of energy consumed, it is called a simple tariff or uniform rate tariff.
• In this type of tariff, the price charged per unit is constant i.e., it does not vary with increase or decrease in number of
units consumed.
• The consumption of electrical energy at the consumer’s terminals is recorded by means of an energy meter.
• This is the simplest of all tariffs and is readily understood by the consumers.

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 Tariff
➢ Disadvantages
• There is no discrimination between different types of consumers since every consumer has to pay equitably for the fixed
charges.
• The cost per unit delivered is high.
• It does not encourage the use of electricity.

2. Flat rate tariff. When different types of consumers are charged at different uniform per unit rates, it is called a flat rate
tariff.
• In this type of tariff, the consumers are grouped into different classes and each class of consumers is charged at a different
• uniform rate.
• For instance, the flat rate per kWh for lighting load may be 0.6 Rs, whereas it may be slightly less (say 0.55 Rs per kWh)
for power load.
• The different classes of consumers are made taking into account their diversity and load factors.
• The advantage of such a tariff is that it is more fair to different types of consumers and is quite simple in calculations.

➢ Disadvantages
• Since the flat rate tariff varies according to the way the supply is used, separate meters are required for lighting load, power
load etc. This makes the application of such a tariff expensive and complicated.
• A particular class of consumers is charged at the same rate irrespective of the magnitude of energy consumed. However, a
big consumer should be charged at a lower rate as in his case the fixed charges per unit are reduced.
Lec. 4 Power Systems (EMSE312) Tariff
 Tariff

3. Block rate tariff. When a given block of energy is charged at a specified rate and the succeeding blocks of energy are
charged at progressively reduced rates, it is called a block rate tariff.
• In block rate tariff, the energy consumption is divided into blocks and the price per unit is fixed in each block.
• The price per unit in the first block is the highest and it is progressively reduced for the succeeding blocks of energy.
• For example, the first 30 units may be charged at the rate of 0.6 Rs per unit ; the next 25 units at the rate of 0.55 Rs
per unit and the remaining additional units may be charged at the rate of 0.3 Rs per unit.
• The advantage of such a tariff is that the consumer gets an incentive to consume more electrical energy.
• This increases the load factor of the system and hence the cost of generation is reduced. However, its principal defect
is that it lacks a measure of the consumer’s demand.
• This type of tariff is being used for majority of residential and small commercial consumers.

4.Two-part tariff. When the rate of electrical energy is charged on the basis of maximum demand of the consumer and
the units consumed, it is called a two-part tariff.
• In two-part tariff, the total charge to be made from the consumer is split into two components, fixed charges and
running charges.
• The fixed charges depend upon the maximum demand of the consumer while the running charges depend upon the
number of units consumed by the consumer.
• Thus, the consumer is charged at a certain amount per kW of maximum demand plus a certain amount per kWh of
energy consumed i.e.,

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 Tariff
Total charges = Rs (b × kW + c × kWh)
where, b = charge per kW of maximum demand, c = charge per kWh of energy consumed. This type of tariff is mostly
applicable to industrial consumers who have appreciable maximum demand.

➢ Advantages
• It is easily understood by the consumers.
• It recovers the fixed charges which depend upon the maximum demand of the consumer but are independent of the units
consumed.

5. Maximum demand tariff. It is similar to two-part tariff with the only difference that the maximum demand is actually
measured by installing maximum demand meter in the premises of the consumer. This type of tariff is mostly applied to big
consumers. However, it is not suitable for a small consumer (e.g., residential consumer) as a separate maximum demand meter
is required.

6. Power factor tariff. The tariff in which power factor of the consumer’s load is taken into consideration is known as power
factor tariff.
In an a.c. system, power factor plays an important role. A low power factor increases the rating of station equipment and line
losses. Therefore, a consumer having low power factor must be penalized. The following are the important types of power
factor tariff :

Lec. 4 Power Systems (EMSE312) Tariff

 Tariff
(i) kVA maximum demand tariff : It is a modified form of two-part tariff. In this case, the fixed charges are made on the
basis of maximum demand in kVA and not in kW. As kVA is inversely proportional to power factor, therefore, a consumer
having low power factor has to contribute more towards the fixed charges. This type of tariff has the advantage that it
encourages the consumers to operate their appliances and machinery at improved power factor.
(ii) Sliding scale tariff : This is also know as average power factor tariff. In this case, an average power factor, say 0·8
lagging, is taken as the reference. If the power factor of the consumer falls below this factor, suitable additional charges are
made. On the other hand, if the power factor is above the reference, a discount is allowed to the consumer.
(iii) kW and kVAR tariff : In this type, both active power (kW) and reactive power (kVAR) supplied are charged separately.
A consumer having low power factor will draw more reactive power and hence shall have to pay more charges.

7. Three-part tariff. When the total charge to be made from the consumer is split into three parts viz., fixed charge, semi-
fixed charge and running charge, it is known as a three-part tariff.

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

Where, a = fixed charge made during each billing period. It includes interest and depreciation on the cost of secondary
distribution and labour cost of collecting revenues.
b = charge per kW of maximum demand
c = charge per kWh of energy consumed
• The principal objection of this type of tariff is that the charges are split into three components.
• This type of tariff is generally applied to big consumers.
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 Tariff

Example 1: A consumer has a maximum demand of 200 kW at 40% load factor. If the tariff is Rs. 100 per kW of maximum
demand plus 0.1 Rs per kWh, find the overall cost per kWh.

Solution:
Units consumed/year = Max. demand × L.F. × Hours in a year = (200) × (0·4) × 8760 = 7,00,800 kWh
Annual charges = Annual Max demand charges + Annual energy charges = Rs (100 × 200 + 0·1 × 7,00,800) = Rs 90,080
∴ Overall cost/kWh = Rs (90080/ 700800) = Re 0·1285.

Example 2: The maximum demand of a consumer is 20 A at 220 V and his total energy consumption is 8760 kWh. If the
energy is charged at the rate of 0.2 Rs per unit for 500 hours use of the maximum demand per annum plus 0.1 Rs per unit for
additional units, calculate : (i) annual bill (ii) equivalent flat rate.

Solution:
Assume the load factor and power factor to be unity.
∴ Maximum demand = (220 × 20 × 1) 1000 = 4.4 kWh
(i) Units consumed in 500 hrs = 4·4 × 500 = 2200 kWh
Charges for 2200 kWh = Rs 0·2 × 2200 = Rs 440
Remaining units = 8760 − 2200 = 6560 kWh

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 Tariff
Charges for 6560 kWh = Rs 0·1 × 6560 = Rs 656
∴ Total annual bill = Rs (440 + 656) = Rs. 1096
(ii)Equivalent flat rate = Rs (1096) /8760= Rs 0 .125

Example 3: The following two tariffs are offered : (a) Rs 100 plus 0.15 Rs per unit ; (b) A flat rate of 0.3 Rs per unit ; At what
consumption is first tariff economical ?

Solution:
Let x be the number of units at which charges due to both tariffs become equal. Then,
100 + 0·15x = 0·3x or 0·15x = 100
∴ x = 100/0·15 = 666·67 units
Therefore, tariff (a) is economical if consumption is more than 666·67 units.

Example 4: An electric supply company having a maximum load of 50 MW generates 18 × 107 units per annum and the
supply consumers have an aggregate demand of 75 MW. The annual expenses including capital charges are :
For fuel = Rs 90 × 105
Fixed charges concerning generation = Rs 28 × 105
Fixed charges concerning transmission and distribution = Rs 32 × 105
Assuming 90% of the fuel cost is essential to running charges and the loss in transmission and distribution as 15% of kWh
generated, deduce a two part tariff to find the actual cost of supply to the consumers.
Lec. 4 Power Systems (EMSE312) Tariff
 Tariff
Solution:
Annual fixed charges
For generation = Rs 28 × 105
For transmission and distribution = Rs 32 × 105
For fuel (10% only) = Rs 0·1 × 90 × 105 = Rs 9 × 105
Total annual fixed charge = Rs (28 + 32 + 9) × 105 = Rs 69 × 105
This cost has to be spread over the aggregate maximum demand of all the consumers i.e., 75 MW.
∴ Cost per kW of maximum demand = Rs (69 × 105 / 75 × 103 )= Rs 92

Annual running charges.

Cost of fuel (90%) = Rs 0·9 × 90 × 105 = Rs 81 ×× 105
Units delivered to consumers = 85% of units generated = 0·85 × 18 × 107 = 15·3 × 107 kWh
This cost is to be spread over the units delivered to the consumers.

∴ Cost/kWh = Rs (81 × 105 /15.3 × 107 )=Re 0.053

∴ Tariff is Rs 92 per kW of maximum demand plus 0.053 Rs per kWh.

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 Tariff
Example 5: Determine the load factor at which the cost of supplying a unit of electricity from a Diesel and from a steam
station is the same if the annual fixed and running charges are as follows:
Station Fixed charges Running charges
Diesel Rs 300 per kW 0.25 Rs/kWh
Steam Rs 1200 per kW 0.0625 Rs/kWh

Solution: Suppose energy supplied in one year is 100 units i.e., 100 kWh. Let L be the load factor at which the cost of
supplying a unit of electricity is the same for diesel and steam station.
Diesel Station.
Average power = 100 kWh/ 8760 hrs = 0·0114 kW
Maximum demand = (0. 0114 / L) kW
Fixed charges = Rs (0. 0114 / L) × 300= (3.42/ L) Rs
Running charges =Rs 100 × 0·25 = Rs 25
∴ Fixed and running charges for 100 kWh = Rs ((3.42/ L) +25)……….. (i)

Steam station.
Fixed charges = Rs 1200 ×(0. 0114 / L) = Rs(13.68/L)
Running charges =Rs 100 × 0·0625 = Rs 6·25
∴ Fixed and running charges for 100 kWh = Rs((13.68/L)+6.25) …………….(ii)

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As the two charges are same, therefore, equating equations. (i) and (ii), we get,
Rs ((3.42/ L) +25)= Rs((13.68/L)+6.25)
L=54.72%

Example 6: Calculate annual bill of a consumer whose maximum demand is 100 kW, p. f. = 0·8 lagging and load factor = 60%.
The tariff used is Rs 75 per kVA of maximum demand plus 0.15 Rs per kWh consumed.

Solution:
Units consumed/year =Max. demand × L.F. × Hours in a year
= (100) × (0·6) × (8760) kWh
= 5·256 × 105 kWh
Max. demand in kVA = 100/p.f. = 100/0·8 = 125
Annual bill =Max. demand charges + Energy charges =Rs 75 × 125 + Rs 0·15 × 5·256 × 105
=Rs 9375 + Rs 78,840
= Rs 88,215

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 Tariff
Example 7: A factory has a maximum load of 240 kW at 0·8 p.f. lagging with an annual consumption of 50,000 units. The
tariff is Rs 50 per kVA of maximum demand plus 0.1 Rs per unit. Calculate the flat rate of energy consumption. What will
be annual saving if p. f. is raised to unity?

Solution:
Maximum demand in kVA at a p.f. of 0·8 = 240/0·8 = 300
∴ Annual bill = Demand charges + Energy charges = Rs 50 × 300 + Rs 0·1 × 50,000
= Rs 15000 + Rs 5000
= Rs 20000
∴ Flat rate/unit = Rs 20000/50000= 0.4 Rs

When p.f. is raised to unity, the maximum demand in kVA

= 240/1 = 240
Annual bill = Rs 50 × 240 + Rs 0·1 × 50000
= Rs 12000 + Rs 5000 = Rs 17000
Annual saving = Rs (20,000 − 17,000) = Rs 3000

Lec. 4 Power Systems (EMSE312) Tariff

 Homework
Q1:A supply is offered on the basis of fixed charges of Rs 30 per annum plus 0.03 Rs per unit or alternatively, at the rate of
0.06 Rs per unit for the first 400 units per annum and 0.05 Rs per unit for all the additional units. Find the number of units
taken per annum for which the cost under the two tariffs becomes the same.

Q2:A generating station has a maximum demand of 75 MW and a yearly load factor of 40%. Generating costs inclusive of
station capital costs are Rs. 60 per annum per kW demand plus 0.04 Rs per kWh transmitted. The annual capital charges for
transmission system are Rs 2000000 and for distribution system Rs 1500000 ; the respective diversity factors being 1·2 and
1·25. The efficiency of transmission system is 90% and that of the distribution system inclusive of substation losses is 85%.
Find the yearly cost per kW demand and cost per kWh supplied : (i) at the substation (ii) at the consumers premises.

Q3: The tariff in force is Rs 150 per kVA of maximum demand and 8 paise per unit consumed. If the load factor is 30%, find
the overall cost per unit at (i) unity p. f. and (ii) 0·7 p. f.

Q4: Two systems of tariff are available for a factory working 8 hours a day for 300 working days in a year.
(i) High-voltage supply at 5 paise per unit plus Rs 4·50 per month per kVA of maximum demand.
(ii) Low-voltage supply at Rs 5 per month per kVA of maximum demand plus 5·5 paise per unit. The factory has an average
load of 200 kW at 0·8 p.f. and a maximum demand of 250 kW at the same p.f. The high voltage equipment costs Rs 50 per kVA
and the losses can be taken as 4%. Interest and depreciation charges are 12%. Calculate the difference in the annual costs
between the two systems.

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 Homework
Q5: A generating station has two 1000 kW diesel-generator sets. The load is estimated to reach a maximum demand of
2500 kW after two years with an increase of 5.5 × 106 units over the present value. To meet this demand, the following
two alternatives are available : (i) Purchasing one more set of 1000 kW at Rs 400 per kW. The annual interest and
depreciation of the new set are 10% of the capital investment. The cost of generation for the station is Rs 75 per kW
maximum demand plus 0.05 Rs per kWh. (ii) Purchasing bulk power from a grid supply at Rs 120 per kW maximum
demand plus 0.03 Rs per kWh. Find which alternative in cheaper and by how much ?

Lec. 4 Power Systems (EMSE312) Tariff