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Electricity - Methods of Charging

( Originally Published Early 1900's )

The Wright System

THE WRIGHT system of charging for electric supply is not an indivisible entity. It is rather a combination of three entities, any of which may be adopted by a lighting company without necessarily entailing the adoption of the others. It includes, first, a method of analyzing costs; second, a method of graduating rates; and third, a device for indicating the maximum demand of a customer.

The Wright analysis of costs is in itself a valuable contribution to the art of electric lighting finance. Its application shows whether any customer is or is not profitable. Its publication has changed materially the beliefs of many electric light men as to what constituted good business. Of the three parts of the Wright system, it is that which has been of the most value to the electric lighting industry.

The Wright method of graduating rates by charging for a fixed amount of supply at a high rate and for all in excess thereof at a low rate, is exceedingly convenient and widely applicable. A fault of the customary discount system is that it graduates rates by a succession of abrupt steps, whereby it results that the customer may sometimes pay less money for more service. For instance, it is customary to allow an increased discount on bills exceeding a certain gross figure, say $50; bills less than that being allowed 10 per cent; and from $50 upwards, 15 per cent. It results that a customer having a gross bill of $50 pays less money for more supply than does a customer having a bill of $49. The same action takes place when a discount is based on use of current per lamp connected. There always comes a point where a slightly increased use of light would produce a lower net bill. The Wright method gives a smooth curve of variation, and by proper selection of the two rates can be made to fit any local conditions.

Compromises Necessitated by Custom

My Company a year ago adopted the Wright method of graduation. I regret to say that we were unable to do away entirely with the discounts. We found it necessary to recognize the larger customers to some extent in that way; but the range of discounts which was formerly 70 per cent is now only 20 per cent, and the general result is decidedly good.

We met one difficulty which prevented us adopting the two rates best suited to our cost of production. We desired, of course, to do no business whatever at a loss, but found that this would entail making higher rates for the first hour than those already established. We were selling current for arc lighting at 10 cents a kilowatt-hour. To get a profit out of some of the arc lighting connected to our circuits it would have been necessary to charge for the first hour at 16 cents. This would have been considered by most customers as an increase in rates, even though publication were made at the same time of the proposed rate of 5 cents for the second hour. We compromised by charging 10 cents for the first 2 hours and by establishing a mini-mum monthly charge for each lamp connected. It results that a few customers do not pay as much as they should, and that a number of customers pay a little more than they should in order to bring up the average to the necessary figure. In incandescent lighting, also, a reduction of our maximum rate from 20 to 16 cents per unit had recently gone into effect. We found by application of the Wright analysis that some of our office building business cost us nearly 30 cents a unit; and we would have much liked to put the rate of the first hour back to 20 cents; but we did not think it politic to do so.

(The speaker made a diagram on the blackboard and interpolated the following remarks. The diagram is reproduced.)

An Analysis by Diagram

This step, line "A," indicates the old incandescent lighting schedule. A customer's bill for a month might fall right in here (x), in which case he could have used a little more light and had a lower bill. The same thing happens, of course, where the discount is based on gross bills. Our schedule was based on use per lamp connected. The new rate schedule is as follows: The first 60 hours' use per month, equal to 2 hours' per day, 16 cents gross per unit, with 10 or 15 per cent discount for cash. The usual discount is 10 per cent, which makes the rate 14.4 net. Then all beyond the 2 hours' use is charged for at 5 cents, or 4 1/2 net, and the resulting curve is this one (B), which you see has no steps and no point where the customer can pay more money for less current. Such a curve illustrates, incidentally, how by proper selection of the two rates and of the time during which the first rate is in effect, a schedule can be made to fit any lo-cal conditions. Now, if our base rate had been 20 cents we would have had a curve like that (C). Or, if I had been able to revert to our former maximum rate of 20 cents for one hour, as I would have preferred to do, the resulting curve would have been this one (D). But we could not raise the maximum, so we compromised by charging our existing maximum for 2 hours. In some correspondence I have had, people say, "I can't make the rate high enough on the first hour." I say, "Make the rate on the first 2 hours and you can get a curve that will be nearly right." Again, we might have made our lower rate 6 cents instead of 5, and this curve would have run off here (F). You can get any connection that you want between your rates and your costs by selecting the rates and by charging the high rate for 1, 1%, or 2 hours. That is what I mean by saying that the method is exceedingly flexible.

Demand Indicators and Useful Dodges

The last constituent of the Wright system, namely, the demand indicator, is that which American stations are slow to adopt. The objection is the expense of the thing. The price at which the demand indicator has been put on the American market is reasonable, but the cost of a sufficient number of indicators to equip all the customers of a station is enough to require careful consideration.

My Company has not been prepared to spend the money for a complete equipment of demand indicators, and I have therefore had to devise makeshifts to take their place. Some of these makeshifts proved so satisfactory that I doubt whether we should abandon them, even if we were now prepared to buy the indicators. For instance, in arc lighting, nearly all our business is with customers who use all their arcs or none, so that the demand is indicated at once by the number of arc lamps connected. The same consideration applies to most of our motor business, and to much of our incandescent lighting. A rating based on lamps connected or motor horse power, proves entirely satisfactory in these cases.

In respect of residence lighting, we have made a very careful study of our local conditions and our conclusion is that we do not want to apply demand indicators in our present circumstances. The maximum residence demand falls into a hollow in our combined load curve, and we are glad to have it increase to any extent that appears possible. But we wish to encourage the use of our light in servants' rooms, basements, etc., etc., where too much gas is now used; and to this end the Wright method of rate making lends itself very readily. So we have "assessed" each residence, so to speak, assigning to each a theoretical "demand" to be paid for at 16 cents per unit and all supply beyond that figure goes at 5 cents per unit.

It is too early to say how the experiment will come out. It was only inaugurated in March, and it will take a winter to decide as to its success; of which I am very hopeful.

Gas vs. Electricity for Residence Lighting—A Survey

(The speaker again interpolated as follows.)

I had hoped to make a report of the study of residences at this meeting, but all I can say now concerns the method of investigation and not the results. But I want to say that our belief that too much gas was used was fully confirmed. We had a group of four hundred customers that were almost exclusively residence customers. They were in a district which was formerly served by a small independent station, having no connection with the mains of the business district; so that the output, the load curve, and everything else for an ideal residence district, could be got at. The question came up, "What was the use of electric light as compared to gas among these people?" We decided there was no way to ascertain it except by a personal canvass. We started in to make a personal canvass. The first thing we did was to go over the list and check out of the four hundred names, churches, a few stores, barns that were lighted when the house was lighted otherwise—in quite a few places people put electric lights in their barn on account of the fire risk, and still used gas in the house—and a number of small exceptions of that kind, and then a number of apartment buildings, where gas was not connected, so there was no option, no occasion for considering them. The final number that we had to canvass personally was 292 customers. Four of these declined to give the information that we asked for. I have a form here that we used, copies of which are available for any one that wants them. It was rather a personal inquiry, that was; it was sort of a personal inquisition into the habits of the people, and it seemed to be necessary that we should make it. We found out of this number, 288 who gave us this information. Our plan was to send a note to each customer stating that our representative, Mr. So-and-So, would call, and we sent a well dressed, well spoken man, a person of address, and he called and found the housekeeper or the lady of the house, and in some instances was referred downtown to the master of the house. We got information in every case personally. If you refer to these blanks you will find that in the first column there are a number of rooms of one class, largely the show rooms of a house, the rooms where a man is likely to put in nice fixtures. The other are pantries, summer kitchens, cellars and servants' rooms, laundry and so on, that he is not so likely to fix up. We put them on the other side for the reasons which will appear afterwards. Then we asked, "Is electric light used exclusively," and so on, and "What other light is used?" We found out that of 288 customers, 140 said they were using gas for most of their lighting; the electric light was only incidental—used it for display practically. Out of the remainder we found five residences where the monthly bills for a year averaged less than 10 cents per month per room for the rooms in the first column—the show rooms of the house. Rooms having twenty and thirty lights were among those rooms averaging less than 10 cents, showing that there was less than 121A lamp-hours per room used, although the possible demand was quite large. You understand that there may have been some light used in the rooms not listed in the first column, so that the condition was, if anything, worse than the report would show. Of residences averaging between 10 and 20 cents per room per month, there were fourty-four; between 20 and 30 cents, twenty-seven; between 30 and 40 cents, twenty-eight; and so on until there were two residences averaging between 80 and 90 cents per room; one averaging 91 cents; one averaging $1.11 and one averaging $1.70. It was evident that we were not getting the business we wanted and some application of the Wright method of rate making might help us. Then we did some guessing. We considered a number of our customers who used electric light freely, whose cases we thought were fairly representative, and we concluded that a customer using light reasonably throughout his house would require 3 units per month for each room in the first column; and we also concluded that we ought to get 48 cents a room, the price at maximum rate of 3 units, to be doing a profitable business. This means, of course, that the whole use of light in the house would amount to 48 cents a room if it were concentrated in the rooms listed in the first column. Thus we made our assessment of a theoretical "demand" for each residence, and in March we notified our customers that any use of light beyond that theoretical demand would be charged for at 5 cents per unit only. It is an experiment, as I said, and we don't know how it will work out. In the meantime I want you to note particularly that in the best residence district in Detroit, the best people—the people that are supposed to be living well and having what they want—out of 288 customers, 140 said they did most of their lighting with gas, although they had the electric light connected; and of the remainder, a great many—more than half—were using less than 2 units per room per month, less than 40 hours lighting with one lamp per room per month.

We sent out afterwards to each customer, a notice which contains one paragraph which I think is worth reading to you:

"We have selected this method of billing in order to make automatically the proper rate to each customer according to the expense which his service entails upon us. We have to make the same investment in engines and dynamos and in copper mains for every light used in the early evening, whether that light is for one hour or for a hundred hours in a month, and it is evident that the customer using the equipment purchased for his use for many hours each month, should have a lower rate per hour than the customer using his share for only a few hours."

We have yet to find a customer who could not understand that. They all caught on right off. A similar paragraph explains the billing in units instead of lamp-hours or kilowatt-hours.

You will notice that the bills are all made for units. I think that is the right way to bill. Our wattmeters, of course, are read in units. The readings of chemical meters can be translated into units very easily. This summer, however, we leased a company which had a number of motor meters reading in lamp-hours, and whose customers were in the habit of reading their meters. We expect to recalibrate all of their meters which are good for anything, but in the meantime we are billing in lamp-hours, using the same form with the substitution of "lamp-hours" for "units," and with the proper alteration in rate.

The Wright System as Applied to Power and Heating

The question of the effect of the application of the two-price and Wright system to power is one in which we have had somewhat exceptional experience. We began this thing on power, began it eighteen months ago. The condition was that our connection for power showed only a slight tendency to increase. That is to say, it was increasing; but the increase was entirely a casual load intermittent elevators, elevators used once or twice a month by people who took in large stocks and didn't use the elevator again that month. We applied the Wright method of making rates in the first instance to power, and it continued in use on power for six months before we applied it to arc light and for eleven months before we applied it to incandescent light. Now, the connected load is not an absolute measure, and I am sorry to say that I have not the report of the revenue to compare, so I cannot say what the effect was on the total business. But the connected load when we started was 692 horse power. It had grown up to 692 horse power in nine years. In the nineteen months since that time it is up to 1,434 horse power, more than doubled in that time. Of that business, elevators of all kinds, including pumps running hydraulic elevators, amount approximately to 550 horse power. I have not the exact data, but I know the average size of the motors and I know the number of motors doing that work, so that only about one-third of our connected load, or a little over, is elevator service. The rest of it is small power users. We have a tremendous number of these small machines, all sorts of things from a small motor running one or two sewing machines, running ice cream freezers, running fans for all purposes (ventilating and for summer use), up to small printing press motors, 2 to 2 1/2 horse power (of which we have a great number), small machine shops. These we were not holding. We were losing them as fast as we could to gas engines. Now, previously to that, our discounts were entirely on quantity. We took up another schedule.

The line in that schedule about "special agreement" only amounts to this, that if a man has an elevator service in connection with his other connected service for his building, we carry his elevator service at the minimum rate, and if we do not want this card to be used as a claim that we are discriminating we start at that point. That is all that that clause amounts to. Our business is entirely on what our men have christened the differential system, which is simply the Wright system with the demand estimated on the ordinary working of the motor. We think that in the power service, more than in any other service, it has proven itself a very great success. Our motor business is going up continually and the reduction of the rate is not at all serious. A good many of our customers were getting a 5-cent rate and the maximum rate was 10 cents. Our rate formerly was 7.1 cents average. Our rate is now 6.18 average. We feel that it is about the best application we have made of the method of charging on two rates.

The trouble with those small machine shops is that they are all more or less of a mechanical turn of mind; they do not have any trouble in keeping a small gas engine in order; they do not get the repair bills on them. You cannot claim, "This is going to cost you so much for repairs every year, and they wear out in just about so long." They know just what it is, they say they can guess themselves what the repairs will be, and you have to meet them simply on cost and convenience. With the printers, they prefer the motors very much over the gas engines, but still when the motor costs them—as it frequently did, with bills amounting to $10, $12, up to $25 a month—four times what it cost for gas, we could not hold them. We do hold them now. In some instances the bills are reduced from 60 to 65 per cent by the application of the new rate, and we feel it is a profitable business. In a great many cases, the associated New York companies have applied a certain rate for the first hour or 2 hours, and a certain rate for the next 2, and so much beyond that—sometimes three rates. We considered that very carefully and we thought it was going to make complications in billing.

We could not hold the heating business, particularly fiat irons used by tailors; we couldn't hold that with the differential at all. The total use per day was not very great and we were in direct competition with gasoline and gas machines, which were very compact and convenient. It was a class of business we wanted, a class of business we didn't feel at all; so that we are carrying that without adding it to the demand. It is almost always in connection with lighting, and we carry the demand on the other service and carry the irons at the minimum rate subject to the 10 or 15 per cent discount.

Minimum Bills

The only question as to minimum we had was those residence people, where we had just the same trouble. They object to a dollar bill—$1 a month for "service"—in the summer when the house is shut up; they do not use the light and they won't pay for it. In the residence district I tell my customers, "We charge you $1 a month" —we stick to that—"and we do it because we want you to cut off when you are away. It costs you nothing. I don't want you on our line when there is no current on the premises; I don't want you to come back if there is a fire there, from some of your visitors or servants going through smoking, and to have it blamed to the wiring. We will cut you off free and put you on free, if you will either telephone us or send us a postal card that you are going away—let us know that you are gone and we will disconnect outside if you feel it is necessary to leave without waiting for us." We have to chase around in a big hurry about this time of the year and reconnect a good many people, but we think that is the better policy; we think that it is quite important in an overhead system of wiring in an uptown district. In arc lighting, I mentioned that we adopted a minimum rate. The arc lighting card reads, "Arc lights owned by the Company are furnished under special agreement only." That amounts to this, that if we furnish the arc lamps we will tell a man, "We will furnish lamps if you will guarantee $2 per month business on each lamp. If you furnish your own lamps the Company will charge you only the regular minimum of $1 a month, for service." We find that is satisfactory, and it has encouraged the purchase of lamps by customers, so that we do not have our money locked up in lamps that are only used one hundred hours a year.

The method adopted in Chicago, and to be adopted in Boston, of varying the demand charge summer and winter, was very carefully considered by us also. We thought it would be better to vary in that way and then we noticed that we had very few kicks in the summer time about bills, that the kicks all came when the bills were getting large in the winter time, and that the result of a uniform "demand" all the year around would be to rather hold up the summer bills, keep them at about the old figure and let down the winter bills, in which most of the trouble came there. Our experience last winter was decidedly satisfactory in that respect, and it is worth while considering when you have a kicking constituency, so to speak.

Substituting "Units" for "Lamp-Hours"

In billing, we bill for units all through. The Peninsular Company, a leased company, where many of the meters are direct reading in lamp-hours, has been obliged to continue billing lamp-hours, but we will only do that until those meters can be recalibrated. On those cards we send out, the first item reads, "The unit of supply is 1,000 watt-hours, usually termed one kilowatt-hour." That is the same right through. On the arc lighting card, we add, "Arc lamps are generally adjusted to use one-half unit each hour of burning. Lamps using more and less are made for special purposes." That covers the ground. Then we say as to motors, "The best motors of ordinary sizes give 1 1/5 effective horse power for each unit of supply used. Small motors, and motors of old types, give considerably less." On the incandescent card, we say, "The unit of supply is 1,000 watt-hours, usually termed one kilowatt-hour, Our 16 candle power lamp, in burning 20 hours, will use one unit. Our 32 candle power lamp in 10 hours will use one unit. Our 8 candle power lamp in 33 hours will use one unit." We felt that the unit of supply was a great deal better way of billing; that to adhere to the old method of billing arc lamp-hours, or incandescent lamp-hours, 16 candle power-hours, or horse power-hours, was an unnecessary complication; that after all, we were selling the supply, and that the furnishing of incandescent lamps and carbons was an incidental and very small expense; so that we have adopted the method of unit billing. I think some of the other companies have done it also, and I believe still other companies are coming to it. It certainly is the proper way.

Window Lighting

In the matter of window lighting, we are in the position of being a comparatively small company. Our output does not go above 1,100 to 1,l00 kilowatts at any time. We have quite a few of these small-company problems to meet. The window lighting one comes up in an awkward shape. A man, who is using gas in his store and shuts his store at six o'clock, comes to you, and he wants window lighting. He gets it on the demand system, which gives him a very low rate for the window lighting. He runs it from dusk to ten or eleven o'clock every day and it makes a nice curve. A little later he concludes to fix up his store, and puts in arc lights behind. You put them all on one meter and the low rate on the window light is spoiled and there is a big kick. We have had to put in two meters because of that. You can't raise him on the window lighting because he takes arc light. It has invariably necessitated two meters, and we have had to put in meters for 100, or 150, or 200-hour lighting back in the store. It completely knocked out the low rate for window lighting that has been in existence for a long time, and put it all right in the maximum figure, if you put him on one meter. He cannot see, and I cannot see myself, why, if he has been paying for five or six months at the low rate for window lighting, that it should be raised just because he takes the arc light in his store. But the minute you combine the two you raise the price of the window lighting, which he was very well satisfied with. It makes serious trouble; it necessitates two meters instead of one.

Effect of Local Conditions

The results obtained by the New York Company and the Chicago Company are very, very good, and they show that much has been done and much can be done in improving earnings by considering the long-hour customer; but those of us who are not quite on the footing of those large companies feel that if we had started from a 20-cent rate, almost any method of reducing rates that was scientific would have improved our business in the same way. We have had to start, in Cleveland, from 12 1/2; in Detroit from 16, that is, 14.4 net; Cincinnati has to start from 15 cents. So it is all over the country. A great many of us are up against a 12 1/2, 14, 15, or 16-cent rate to begin with, and we have to be a little bit careful how we cut. I think myself, with all respect to the New York Company's management, that pretty nearly any kind of a cut that was not an absolute piece of foolishness would have improved the load curve and improved the business, so long as they were holding the 20-cent rate. Understand, I do not say you must not charge 20 cents for some business. We have some business we ought to get 30 cents for. My costs are almost out of sight on some business. In fact, I tell my men who are out after business, that I am not spoiling to get anything that does not run 300 hours a year; and I have to run a great deal that is only 120, 150, 160 hours—office building lighting and that sort of stuff. I would like to make a rate of 30 cents, but I have to start away down. I have to carry a block of business somewhat less than 300 hours at a loss, and of course I have to make that up on the other fellows, and I have not so good a point here to take off from as the other people. I know I am speaking the sentiment of a good many among us working on the smaller rates when I say that while we appreciate the results in New York and in Chicago, and appreciate what is expected to be done in Boston, we feel that we have not quite so much margin to work on, and that if we had to start from the same conditions we should have been better pleased; and while the results they show are of interest, they are not an absolute guide to us because of the different point of departure and because of their conditions being such that, as I may say, in many cases almost any reasonable method of reducing rates would have improved the business.

The summary of our experience is that while the Wright analysis, and the Wright method of rate graduation, are entirely practical for our conditions, the demand indicator is not entirely so, being in some places unnecessary and in others undesirable. It is in many places desirable, and in others is a necessity, and each lighting company must be guided in its use by its own conditions.

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