BELIEVE IT OR NOT, the vast majority of commer­cial, industrial and institutional organizations pay their utility bills largely by guesswork. Since these serv­ices are vitally essential to your operation, you assume the need and pay the asking price without question. In so doing, you are probably paying considerably more than you should.
This fiscal carelessness stems from three misconcep­tions:
v Misconception No. 1 . . . State public service com­missions establish utility rates and compel the utility com­panies to see that customers receive the lowest rate—and that such action is enforced.
The fact is that for all practical purposes utilities ac­tually establish their own rates. State public commissions recognize the fact that the initiative for making and changing rates lies with the utilities themselves. Utilities are subject to varying degrees of regulation in most states. However, in actual practice, the interpretation and ap­plication of rates by utility companies are given broad latitude and vary greatly. In the final analysis, state pub­lic service commissions are fundamentally concerned with the "over-all" picture of rates—and then only with respect to the total annual revenue yielded a-utility company.
While we can quote from the rules and regulations of most every state commission, we think the following statement from the Georgia Public Service Commission represents the unanimous viewpoint of most all commis­sions.
*This commission does not require that utility com­panies guarantee to commercial and industrial consumers the lowest available rates for a given operation. When two or more rate schedules or types of service are avail­able it is the customer who must make the final decision
as to which type of service he desires. If the customer guesses wrong as to what type of service will be most economical, the utility cannot be required to reimburse bim for his mistakes."
The significance of this statement lies in the admission by this commission that the customer is doing no more than guessing when he is selecting a rate and the utility cannot be held responsible.
v Misconception No. 2 . . . The Federal Power Com­mission exercises direct authority over utility rates.
The fact is the Federal Power Commission has no control over your local gas or electric rates. The Public Utility Act of 1935 gave the Federal Power Commission regulatory powers over interstate wholesale rates of elec­tric utilities. The Natural Gas Act of 1938 broadened regulations by the Federal Power Commission to include

Basic Changes and Your Options

transportation and sale of natural gas in interstate com­merce. Sounds good, doesn't it? But you do not buy utility services on an interstate basis. Therefore, the Federal Power Commission has no jurisdiction, over your rates.
V - Misconception No. 3 . . . Utility companies auto­matically give customers the lowest rate obtainable.
The truth of the matter is the power companies them­selves state the selection of rates is the customer's re­sponsibility. Since the full facts are often not available to the customer, the selection of the lowest rate is common­ly a matter of guesswork for anyone but skilled analysts with unlimited rate information.
This may be alarming news to many of you and should be explained. The answer lies simply in the fact that a utility may have as many as one hundred or more and many utilities are serving in excess of one million cus­tomers. This is particularly true in the electric industry which has progressed from the light bulb to the multitude of uses for electricity. With the advent of each new use, many utilities created new rates especially designed to encourage and promote that use.
With the advent of new rates, optional rates, special class rates, etc., the utilities are quick to point out that they are serving thousands of customers and it is physical­ly impossible for them to police the uses to which their services are put after it passed through their meter. On this premise, your utility company does not guarantee to the individual customer the lowest and best rate they might offer.
While the language may vary between utilities, essen­tially their rules and regulations read much the same as the following quotations:
OHIO EDISON COMPANY . . . 'The Company does not guarantee that customers will be served under the most favorable rate at all times and will not be responsi­ble for notifying the customer of the most advantageous rate."
When your plant was constructed, undoubtedly your electrical and gas systems were very carefully studied for a minimum investment and operating cost consistent with safety, reliability and provision for expansion. However, the utility requirements of most successful companies in­crease rapidly as time goes on, due to increased business volume as well as changes in production techniques re­quiring greater use of electricity and gas. A correspond­ing increase in costs usually is accepted as normal; no thought is given to the possibility that now another rate may result in very substantial savings.
                                                                              Assume for the moment that you have selected a rate that you believe to be the lowest for your particular oper-e ation and usage. Your rate will usually be made up of several clauses, shrouded in a language of complicated terms and utilizing a terminology usually totally unfa-• miliar to a layman. And your end cost may be the sum of four or more separate charges.
Electric rates are made up of two basic charges .. .

Often, within your own rate, vou are offered optional provisions for determining demand—and you must discern: which option offers the lowest cost to you. Always, in. selecting optional rates, you must compare demand clauses to decipher which rate, in your judgment would offer' the lowest cost.
Here are some excerpts from typical rate schedules showing the varying methods by which metered demand is converted into billing demand:

Metered Demand x 80                Bitting demand
Average Power Factor                     in KVA

Your man can check

Your man
cannot check

A laundry in S. Carolina used an incorrect meter constant of 40. The correct constant was 20.
It received a refund of $3,272.33.)

The excerpts from utility schedules cover only this one phase of rate structures—determination of billing demand—and demonstrate that only rate experts can audit utility bills properly.
The 'Power Factor'
In some of the billing demand clauses we've quoted, you will have noted that "POWER FACTOR" is involved in determining billing demand. While no direct charge for low power factor is provided in those clauses, higher costs are experienced through increased demand charges.
Many rate schedules contain a power factor clause which may call for a separate charge over and above the regular demand and energy charges. Such a clause will usually state that the consumer will be penalized for every point that his electrical system's power factor passes below a certain base point.
Here again the average business executive has diffi­culty in understanding power factor. Devoid of compli­cated engineering terminology but sufficient for this arti­cle, we define power factor as a vector relationship be­tween power going into your plant and actual usable power that runs Your motors and lighting.
Certain kinds of electrical equipment, such as trans­formers. motors, flourescent lamp ballasts, and others, have low power factor. Your utility, for example, might have to supply 100 KW or KVA in order to give you 80 KW of usable power. Power factor clauses tell you whether you pay for what they deliver or what you use.
If you are paying for what they deliver—then you want to make certain you are utilizing as near 100% of that power as you possibly can. Reduction of low-power factor charges requires a detailed knowledge of the oper­ating characteristics of the electrical equipment in the customer's plant. With this data, the proper corrective action can be recommended that will raise the power factor. Usually this involves installation of capacitors or synchronous motors at critical points in the plant's elec­trical system. Obviously, the investment in new equip­ment must be written off by the savings obtained through elimination of the power factor penalty charges. Power factor is thus but one more factor with which you must contend in determining the rate best suited for your re­quirements.

The following example is cited to show how this con­sumer had to select between two supposedly identical rates. Availability, demand and energy charges were the same. The power factor made the difference:
Rate C provided that the maximum demand shall be based on an average monthly power factor of 80%, and if the average monthly power factor is above or below 80%, an adjustment shall be made according to the fol­lowing formula: Maximum demand multiplied by 80, di­vided by average power factor, equals demand for bill­ing.
Rate Cl provides that the billing demand shall be the maximum monthly demand adjusted to a power factor of 80% according to the following formula: Maxi­mum demand multiplied by 80, divided by the power factor at time of maximum demand equals billing demand.
Can you detect the difference? This consumer could not and in "guessing" he picked Rate Cl and paid over $200 per month more than he would have under Rate C.
Most competent rate engineers know that in a majority of cases, the power at peak demand is considerable lower than the average power factor throughout the month. When calculated—his billing demand under Rate Cl was 970 KW—whereas under Rate G it was 792 KW-178 KW LESS.
U you have occasion to study your power rate, you may find many other factors that are contributing to your total cost—one of which will be a fuel adjustment clause. Without increasing their basic rates, your power compa­ny long ago devised a way to pass on to their customers any increases they might experience in their own fuel costs. Your own fuel adjustment might be correct but are you equipped to check it?
Your rate schedule may provide for one or more dis­counts—applicable if you use service in a certain way or for certain purposes. You may now be entitled to dis­counts you are not getting or some minor change could entitle you to as much as 5% or more.
What Can I Do?
If you have been shocked with the knowledge that the responsibility for the selection of rates lies squarely on your shoulders; then maybe you should do something

• In a new plant—make certain that your wiring and all gas and water piping are more than adequate in size to allow for growth and expansion. You'll save yourself many headaches (and money) in future years.
• In the beginning ask for or about the best type of service available that will obtain for you the lowest available rate. Rates are designed for lighting, for power; combinations thereof and dozens of other uses—but such things as single phase, three phase, primary, secondary, tuel, demand, etc., have a bear-mg on your getting the lowest rate.
• Call your utility company whenever you contemplate adding to or subtracting from your power or gas consuming equipment. Any such changes may have a bearing on your rates and it certainly will affect your costs. There may be a rate especially designed for the particular new piece of equipment you are installing—and which is cheaper than your present rate.
• If new square footage is added to your plant, call your utility to obtain best service to give you the lowest cost.