# Distribution vs. Transmission: Comparing Tariffs

## Larger industrial and commercial building owners can restructure their electric service to best take advantage of the deregulated environment. The end-user can select a preferred generation source, and, in effect, use the electric transmission system as a common carrier to get energy to his facility, bypassing altogether the local utility's distribution system.

November 1, 2000

Larger industrial and commercial building owners can restructure their electric service to best take advantage of the deregulated environment. The end-user can select a preferred generation source, and, in effect, use the electric transmission system as a common carrier to get energy to his facility, bypassing altogether the local utility’s distribution system.

The decision to bypass the distribution system is primarily economic. Transmission service is generally much less expensive, and having choice implies competition on price.

However, to have access to the interconnected utility grid and multiple generation providers, the end-user’s electric service must migrate from the serving utility’s distribution system to the transmission system. Also, the industrial facility must assume all of the design and operational responsibilities traditionally handled by the utility.

To assist in determining whether the additional work is worth the savings, it helps to quantify them. The attached tables, which compare the distribution and transmission tariffs from a large Midwestern utility, show a typical industrial load using both tariffs, as well as the percentage savings for sample load ranges and load factors.

Table 1 – Typical Tariffs and Industrial Load Calculations

TYPICAL TARIFFSDistribution serviceTransmission service
Service charge \$10.00 \$100.00
Demand charge First 1,000 kW: 12.11 per kW First 50,000 kVA: 10.53 per kVA
Energy charge Demand times 300: 0.01905 per kWh Demand times 300: 0.0085 per kWh
INDUSTRIAL EXAMPLE Distribution service Transmission service
Service charge \$10.00 \$100.00
Demand charge 1,000 kW X \$12.11 = \$12,110.00 3,500 kW X \$10.53 = \$368,550.00
34,000 kW X\$10.51 = \$357,340.00
Energy charge
35,000 X 300 = 10,500,000 X 0.01905 = \$200,025.00 35,000 X 300 = 10,500,000 X 0.0085 = \$89,250.00
(17,885,000-10,500,000) X \$0.0072 = \$53,172.00 (17,885,000-10,500,000) X \$0.0067 = \$49,479.00
Total \$622,657 \$507,379

Transmission tariffs from a large Midwestern utility show that they are generally much cheaper than distribution rates. An industrial facility with a 35,000-kW load and a monthly energy consumption of 17,885,000 kWh-and a load factor of 70 percent-will have the charges shown above (fuel charge excluded) at 100-percent power factor.

Table 2 – Savings

10,000 19.0
20,000 18.7
30,000 18.5
40,000 18.5
50,000 18.5
60,000 18.4
70,000 18.4
80,000 18.4
90,000 18.4
100,000 18.4

Using the tariffs shown in Table 1, potential savings were calculated over a broad range of demands, showing a consistent level of savings. Another major variable to consider is load factor, which is found by dividing the total annual energy consumed by the demand, multiplied by 8,760 hours per year. The lower values shown represent peak loads.