Some Texas small businesses and other small volume electric customers -- such as ball fields, churches, and the like -- may soon get relief from the "demand ratchet" which currently subjects these customers to higher electric rates.

A demand ratchet is a mechanism by which electric rates are billed based on either the peak demand by a customer in the current month, or some percentage of the peak demand for that customer during previous months. For example, with an 80 percent ratchet, if a customer were to demand 100 kW during August, that customer for the next 12 months would pay based on either actual monthly peak demand, or 80 kW (80 percent of 100), whichever is greater. If, in September, that customer had a peak demand of only 50 kW, the customer would still be charged based on 80 kW -- 80 percent of the annual peak demand of 100 kW -- because the customer's energy demand for billing purposes would be "ratcheted" to 80 kW.

In other words, the customer is charged a demand that is higher than the demand they actually placed on the grid in that month.

The demand ratchet is designed to reflect the customer's peak demand placed on the distribution system, and allocate costs for having to build and maintain the system to meet the demand of each customer at the system peak.

However, for many small customers with seasonal facilities or facilities which are only used occasionally, their peak usage does not come during peak times, and thus their demand is not adding to the total peak demand for which the electric distribution grid needs to be designed. In other words, the utilities do not have to account for those seasonal customers' demands during peak times, and thus the utilities aren't building "extra" capacity on the electric grid to serve those customers -- but they're still charging the customers the higher electric rates as if they were building the extra capacity.

For example, a church may have a demand of 100 kW on Sunday, but for the rest of the time -- including peak weekday afternoons -- it is drawing minimal energy, perhaps less than 5 kW. Similarly, a ball field will have its highest demand at night due to lighting, when such demand is not contributing to the system peak. When these customers' have their highest demand, there is "excess" capacity on the distribution grid, and therefore it is inefficient to charge them as if their demand was contributing to the system peak, and requiring the utilities to build the system to meet that peak.

Consistent with legislation passed in the most recent session, the Public Utility Commission (PUC) of Texas is conducting a rulemaking to exempt certain customers from the demand ratchet, to reflect that these customers' individual peaks do not contribute to the peak requirements of the distribution system.

Specifically, a PUC proposal currently out for public comment provides that a demand ratchet would not apply to a non-residential secondary voltage service customer that has an annual "load factor" less than or equal to 25 percent.

Stakeholders are currently debating whether the 25 percent threshold is the correct exemption level, or whether it should be expanded to cover more customers.

While the proposal is primarily intended to help ball fields, churches, and the like, the exemption would be available to all customers meeting the eligibility criteria noted above (non-residential secondary voltage service customer that has an annual load factor less than or equal to 25 percent); therefore low load factor small businesses would also receive relief from the demand ratchets.

The goal of the rulemaking, aside from the rate relief, is also to make the ratchet simpler to understand. Some of the utilities have demand ratchet exemptions already, but they have more complex eligibility criteria.

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