Investigate and report on an organisation\'s method of allocating electricity co

Question

Investigate and report on an organisation's method of allocating electricity costs You can use any organisation with which you are familiar. Consider the following: 1. Does the organisation allocate the total costs of electricity? 2. If so, what is the basis for the allocation of the total cost of electricity incurred for a period? 3. Calculate the percentage and cost of the total cost for each allocation Complete a report that you could provide to management about your findings and include within it an executive summary. Make recommendations to management about the appropriateness of the methods of allocating costs and provide reasons for your conclusions within the report. 40 marks

Explanation / Answer

Cost allocation is a process of providing relief to shared service organization's cost centers that provide a product or service. In turn, the associated expense is assigned to internal clients' cost centers that consume the products and services. For example, the CIO may provide all IT services within the company and assign the costs back to the business units that consume each offering.

Economic efficiency

The costs of supplying and delivering electricity vary by day, and some economists have argued that the electricity used in each hour is a separate commodity

Unless consumers see this time variation in prices, they will have no incentive to modify their pattern of energy usage

Excess capacity will have to be built and kept on reserve to meet peak loads during a few hundred hours of the year

Under flat energy rates, customers who consume relatively less power during peak periods subsidize those who consumer relatively more power during peak periods

There are almost 60 million households with smart meters today but less than 2 million of them are on TVP

That prevents us from harnessing the benefits of universal dynamic pricing

$7 billion per year in lower energy costs

$3 billion per year in reduced cross-subsidies between customers

Utilities that supply energy would use a five-part rate

Monthly service charge

Charge for connected load (or maximum customer demand)

Maximum demand charge (coincident with the distribution peak)

Charge for generation capacity

Time-varying energy charge

Distribution-only utilities would use a three-part rate

Monthly service charge

Charge for connected load (or maximum customer demand)

Maximum demand charge (coincident with the distribution peak)

Fixed charges are one option for addressing the cost-shift issue and do not require metering upgrades

Some costs, such as metering, billing, and general overhead are clearly fixed and vary with the number of customers, not with the amount of electricity consumed

Customers doesnt needs to be Electricity experts to understand a demand charge

Responding to a demand charge does not require that the customers know exactly when their maximum demand will occur

If customers know to avoid the simultaneous use of electricity-intensive appliances, they could easily reduce their maximum demand without ever knowing when it occurs

Georgia Power: “Avoid simultaneous use of major appliances. If you can avoid running appliances at the same time, then your peak demand would be lower. This translates to less demand on Georgia Power Company, and savings for you!

This simple message should be stressed in customer marketing and outreach initiatives associated with the demand rate

Examples from utility websites
APS: “Limit the number of appliances you use at once during on-peakhours”

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