Keystone Designer allows users to model both time-of-use and tiered rates. This "document" focuses on Fortress Power's methodology for calculating and comparing tiered rates in Keystone Designer.
Before discussing the nuances of Fortress Power's approach to tiered rates, it is essential to understand what a tiered rate is and the two main types of tiered rates supported by Keystone Designer. First of all, unlike time-of-use rates, which vary the cost of energy based on the time of day and allow utility customers to save if they shift some of their energy use to lower-cost periods, tiered rates have a constant energy cost at all times. However, a rate that does not depend on the time-of-use comes with other tradeoffs, i.e., tiers.
Utilities base tiered rates on a customer's energy consumption in a given billing period. In other words, as a customer uses more energy in a billing period, the customer's energy rates will enter new pricing tiers. These tiers can be either increasing or decreasing in price, and these tiers can be either retroactive or non-retroactive. We cover the details of both the direction and retroactive nature of tiered rates below.
An example is the most straightforward way to illustrate the difference between an increasing and decreasing tiered rate. First, let us assume that a customer is on a tiered rate with a baseline allowance of 200 kWh and a base rate of 10¢ per kWh. As a result, the customer will pay 10¢ per kWh for their first 200 kWh of energy from the utility. Once the customer exceeds the baseline allowance, they move into the next tier. If the next tier's price is higher than the first, 15¢ per kWh, we would say the tiers are increasing. If, on the other hand, the next tier's price is lower than the first, 8¢ per kWh, we would say the tiers are decreasing. Utilities may repeat this structure for any number of tiers and baseline allocations. For example, the second tier may have a baseline allowance of 500 kWh. In that case, if the customer exceeds 500 kWh of energy consumption in a billing period, they would enter the third tier with a new price point. Typically tiers tend to be monotonically increasing or decreasing, depending on the nature of the schedule.
The second feature of tiered rates is the effect of tiers on energy rates already applied to past consumption within the billing period. In the previous example, we discussed a tiered rate structure where the utility charged the customer 10¢ per kWh for the first 200 kWh consumed in a billing period, and a second rate (higher or lower than the first) for the consumption of energy exceeding 200 kWh, and finally a third rate (higher or lower than the second) for energy consumption exceeding 500 kWh. When the rates associated with a given tier are constant, which is the case we just covered, the tiered rate is "non-retroactive." This name comes from the fact that the tiers do not affect the pricing in previous tiers. If one were to imagine a non-retroactive tier's pricing over a given billing period, it would look like a staircase. This staircase shape would be increasing or else decreasing with time, depending on the directional nature of the rate schedule.
In contrast to non-retroactive tiered rates, the tiers in a retroactive rate affect previous tiers' rates. To use the example above, if a customer exceeds the baseline energy allocation for the first tier, 200 kWh, the utility will charge the second rate for all energy consumption for the billing period. Similarly, if the customer exceeded 500 kWh, the utility will charge the third tier's rate for all energy consumed in the billing period. Unlike the staircase structure discussed above, a retroactive tiered rate looks like a flat line for the billing period associated with the last tiered entered in the billing period.