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Electric Residence Rates in Detroit

( Originally Published Early 1900's )

AT the last Convention I made a brief statement, which has appeared in the Minutes, of an experiment in the application of a differential rate to house lighting. I promised to make some statement at this meeting of the result. The new method has been in application for fourteen months, but because of changes in accounting, and because its application was not instantaneous, but was gradual only, the records of only nine months past are of value for comparison. From these records I have platted the curves submitted herewith.

I may say, for the benefit of the members who were not present at the last meeting, and did not hear the detail report, that it was an experiment in the application of the demand system to residences, without the use of the Wright demand meters. Instead of putting in an individual demand meter for each customer, I evolved a plan of assessing his house. The logic of that was that a man's house was a fair index of his station in life葉hat the water department assessed in the same manner, practically on the size of his house, and that the method was not unfamiliar to my customers. I rated each house by a classification of the rooms, and sent a notice to each customer, which you will see in last year's Minutes, that on and after such a date, any current used in any month above a certain quantity would be charged for at a much lower rate. The regular standard rate was 16 cents a kilowatt-hour; the second rate was to be .5 cents a kilo-watt-hour. A discount for prompt payment of 10 per cent, almost invariably obtained by the customers, made the net rates 14.4 and 4.5. That makes a very quick drop in the curve, which is produced by a differentiation of the rates葉he slope bringing it down so that with 3 hours' use of the demand, the rate falls to 11.1; with 4 hours 9.45 and with 5 hours, 8.46 cents. It favors decidedly the longer hour customer. This system applies to the central residence districts of Detroit, along Woodward Avenue, approximately 2 miles long and 3/4 mile wide; and in that district we had available for experiment at that time about 440 customers. These were houses large and small, houses having 230 lights installed, and small apartments having eight and nine lights installed, the average being forty lights per customer.

Notable Results of the Differential Rate

The change in method of charge was made in the early summer. It affects the summer rate very slightly and there were no apparent results until the fall. The first notable result was decrease in earnings, as compared with the previous year. This we expected as a natural consequence of reduction of rate. The reduction amounted to 20 per cent in midwinter, and to 1 per cent at midsummer; and of course, there is always a lag between the application of a low rate and the increased business consequent thereon. The next notable result was the cessation of complaints about alleged excessive bills. This result was very notable, the only complaints received during the past winter being due to exceptional but perfectly proper causes, such as errors in billing; or, from a few chronic complainants, who appear to have a note in their annual calendar that about this time in the year it is proper to make a kick.

The third notable result was the increase in the connection of customers. The number of residences connected in the district had been almost stationary, the increase being much less than the increase in population warranted. Under the new conditions, as indicated by the curve marked "bills rendered," the rate of increase was much more rapid, and a maximum was attained of 26 per cent greater than during the preceding winter. Moreover, when the usual summer exodus was due, the number of cut-off notices received was less in proportion than during the preceding year, so that the number of residence customers remaining connected in July was more than 50 per cent greater than during the preceding year.

You notice the slope. Naturally people go away for the summer and direct the current discontinued, which makes a falling off in the bills for the summer months. The slope is steeper on the lower curve than on the upper.

Effect on Revenue

The total revenue for each of the periods compared is almost identical. The loss in the first months of experiment is fully offset by the increase during the later months. And as the increased earnings continue, we may reasonably expect that for the whole period of twelve months, and thereafter continuously, the experiment will result in an increase of revenue. It is interesting to know that, on the whole, the number of units sold to each customer has not increased. This was an unexpected result; the intent being to increase the use by existing customers. The curve marked "average units per bill" shows that during the winter months, and throughout the whole period excepting April and May, the average units per bill is less than under the old conditions. An examination of accounts of a number of the old customers shows that their use is generally increased, and a further comparison shows that the decrease in the average units per bill is because the increase of connections is chiefly among smaller users of current. These conditions, although not foreseen, might have been predicated, because electric lighting being, even under the modified conditions, more expensive than gas, is likely to be used, in the first instance, by those with whom economy in house-hold expenses is not imperative. The reduction in rate makes electric lighting available to a class of customers to whom its cost was formerly prohibitive, and the increased connections in this class have brought down the average of the monthly bill as shown.

When I first struck the average units per customer, I said, "Well, that upsets my whole scheme." I then proceeded to compare carefully a number of old customers, and found that if there was not an increase in any case there was an obvious reason for it葉he house had been shut, or something of that kind, and, having a personal knowledge of the habits and customs of the people, I was able to be positive that we had increased the business among the old customers. But an examination of the new customers showed that they were not as a rule large consumers, and the average bill rendered had fallen off in consequence of the addition to the circuits of a very desirable class of business.

A question which was of great interest to us was whether the in-crease of business would be during the winter months or would be distributed throughout the year. The effect in this respect is better than we expected, the greatest increase being in the months of April and May. It seems unreasonable that this increase should not continue during June and July, but this is due to the diminished use in residences where the family is absent from town, and where, how-ever, the electric light connection has been left in service this year, as it was not last year, for the servants. The closing up of houses entirely is not so common in Detroit as it is in eastern cities. There is generally some person in occupation, and in very many cases the owner of the house himself remains in town and sleeps at home, although his family is away.

You will notice that although the "average units per bill" has fallen off quite markedly, and the rate of increase is not so great in the summer months as we might have expected, the earnings have remained along at the old figure since February. We live in that district ourselves, and Mrs. Dow has pointed out to me that a great many people who could not see their way to go out of town last year have gone this year; that while the number of customers connected is greater this year, the proportion of families actually away was much more than last year. That settles the question of the peculiar drop in the curve of per cent of increase. This is a district where we have an opportunity to have an unusually large personal knowledge. It is a district not of large houses, nor of millionaires, by any means, but average good residences. If the present use continues for twelve months the average bill for the year will be a little over $38 per customer. It takes a number of small customers to bring down residence lighting to such a small figure. It will be about 90 cents per lamp connected for twelve months and that will indicate to you the class of residence lighting to which the experiment was applied.

Effect on Load Curve

As to the effect on the daily load curve of the station: It was intimated by some members in the discussion last year that there would be a great increase on the peak, inasmuch as residence lighting might be expected to have the same daily characteristic. I answered at the time that this was a matter of no consequence. Under our conditions the peak due to residence lighting coincides with the hollow in the load curve of another station which could work in multiple with the station in the residence district. I have to report, however, that the increase which was due on the peak of the residence load is so small, in comparison with the increase of output, that it is negligible. The station is a small one, having a maximum output of 200 kilowatts, and the evening maximum is not due to residence lighting at all, but is due to churches. In the curves presented, the churches have been left out of the figures. In the station load curve, the church load is easily identified, and it produces a maximum about eight o'clock, while the maximum due to purely residence lighting arrives at 6:45. The greatest load always comes on a rainy Sunday, and we believe it is due to the usual lighting of the churches, coincident with a greater amount of residence lighting due to the people staying at home who would on a fair Sunday evening have gone to church; as being excused from their religious duties by the state of the weather.

Practically, the district load curve has not been injuriously affected at all; and had it been so, it would only have required the sending of more current from the downtown station. We estimate the increase in the residence maximum at about 6 per cent or 7 per cent.

Effect on Expense

As to increased expense, I am obliged to say that I cannot find any such. There are, of course, more meters to read, but this increase is masked by a simultaneous substitution of wattmeters for the old style chemical meters, so that the meter reading expense for the district is actually reduced. The clerical work due to increased bills has also been reduced by the adoption of improvements in office methods. The station force is just the same as it was a year ago, be-cause it has not been necessary to run any more machinery. And finally, the coal bill is less. I did not expect any very perceptible in-crease in the coal bill, because in a station which has to fire up in the afternoon and to bank fires every night, the stand-by losses of heat completely mask the effect of any ordinary variation in the load. But even what slight effect might possibly have been identified is disguised by the adoption of some minor economics.

Summation of Results

To sum up, we have in the nine months earned (gross and net) the same amount of money by selling more current; our customers have quit complaining about bills; we have connected a number of people who formerly said they could not afford to use electric light; and our former customers are using light more freely. The indications are that from now on, the earnings gross and net will be in-creased over the former figures. While we do not claim that the figures presented herewith demonstrate that our experiment is a success, we think that they justify us in believing it to be so. We certainly think that the differential method of charging. is desirable for residence business.

Collateral Results

I want to say that in talking over this matter while visiting around the last two weeks and after the paper was written, some matters came up that will probably be of general interest. This being a purely residence district, it was possible to state distinctly what hours' use of the maximum station demand could be expected from such a class of business. We estimated, and the possible errors are small, that the maximum demand from residences in that station is two hundred kilowatts; and on that basis, and again estimating the three months to come, the hours' use of the maximum station demand of residences will be 794 hours per annum. That is an interesting figure to know. It shows that the residence lighting, referred to the station demand, is desirable. The office building lighting is 150 hours; the factory lighting not more than 220 hours, and the residence lighting with a demand of 794 hours is distinctly very desirable business. The decrease of rate is 15.4 per cent, and, of course, the increased business had to be over 18 per cent to even it up. The average rate figures 12.05 cents (the curve showing, of course, the variation from month to month), and the old rate average was 14.24 cents. A few customers used to get 15 per cent discount through running bills of above $50 a month.

I am asked whether we are displacing Welsbachs. I do not know that we are actually displacing them except in some few cases where the houses have been redecorated and the Welsbach burners have been discarded, because of the blackening of the ceiling which was due to them. But we have stopped them going in. I find it necessary, however, to get some substitute for the Welsbach reading lamp. A number of our good customers said they could not read by electric light, and that the family lamp on the table with the Welsbach burner was more desirable. I sent out some frosted 32 candle power lamps and requested our customers to try them, and it has produced a satisfactory demand for that purpose.

The question came up, "Did the customers catch on?" There has not been a single customer who has asked a single question about that change of rates that indicated that he did not understand it. The circular letter sent out was made clear and one point was explained very clearly to everyone葉hat the new rate could not raise a bill, but would bring it down, if there was any difference at all.

I think I have disposed o all the odd questions asked after the paper was prepared, but if I have not, I will answer them. I believe I know all the conditions that entered into that experiment pretty thoroughly.

Conditions of the Experiment

Our condition was this: Our standard rate was and is for in-candescent lighting, 2 hours' use per day, 60 hours per month, of the connected load at full rate. Anything beyond that is at the low rate葉he 4 1/2-cent rate. We have a differential rate on all classes of business悠 mean a rate made on the differential method: So much an hour at a standard rate, and any excess at a much lower rate, the average rate being the differential due to a combination of the two rates. The standard rate is 16 cents a unit, with a discount of 10 per cent for prompt payment, making the rate 14.4. I have taken the discount into account in figuring this business, as it is earned by practically all the customers. The figures are made on the bills rendered, so that if a customer failed to get his discount and we collected the 10 per cent, it would not affect the results. Applied to residence lighting, where the average number of lamps was forty, it required the use by customers of a great deal more current than you would imagine; it required forty times 60 hours, some 2400 lamp-hours, before the low rate would apply at all. It was obvious that under these conditions the differential rate did not help these customers, but at the same time I was not prepared to make any change in the differential rate in the business district where many customers were already earning a low rate. If I had started them at 20 cents, I would not have asked 60 hours' use per month before applying the low rate. The trouble was that we had made a 20 per cent horizontal cut to 16 cents, and to keep my earnings up to a healthy figure I had really to penalize the long-hour customers in order to carry the short-hour ones. We have some short-hour customers who ought to pay 40 cents a unit for all the light they use. To apply a differential rate to residence lighting was an awkward problem. A man comes at you with a residence bill and says, "I have a lot of lights connected, but there are only three in the family and we do not burn much light." I used to say to such a party, "See here; this requires either a change in the rate or an in-crease in the family. I will figure on the change in rate and you figure on the increase in family." Sometimes I catch him that way, and sometimes I don't. The next man comes and says, "Down in my store I use lots of light and get a good rate and have no fault to find; why cannot you average up my two bills?"

I came to the conclusion that we must have some customers who were using light all over the house, and in that way were paying more than they ought to, and a little examination showed that we had quite a number of that kind, distinctly well-to-do people, who used the light regardless of cost, who had money to burn, as some one said this morning. I made an investigation of the four hundred customers and ascertained the number of rooms in each house; the classes of rooms, whether used by the members of the family, guests or servants; what rooms they were likely to light up as a matter of show; and what the habits of the owner were in the matter of the use of electric light; and I got some results concerning which I would refer all the members to the Minutes of the last meeting. I think they are about the only instance in our recent Minutes of an actual presentation of facts gained by a visitation of customers. I had only two customers who did not give me the information wanted. We had a number who said that they only used electric light as a luxury and used gas or kerosene oil for a steady light.

To make the better rate without making a present to those customers who used electric light only occasionally葉o make the rate to profitable customers only謡as the first problem. I had an answer to that in the application of a differential system of rate making. The next point was where we should place the line of difference葉he amount used at the high rate and the amount used at the low rate. I wanted four hundred demand meters, and (most of them being three-wire connections) that meant seven hundred Wright meters, and I did not see seven thousand dollars in it. I had already applied the differential rate to power by taking the rating of the motor as a general basis, and in some exceptional cases taking the actual load as a basis, and found that the method worked smoothly. I thought, therefore, that an arbitrary demand, instead of a demand ascertained by meter, might serve the purpose, and that this particular block of Edison customers, who were accustomed to being served from a separate station and were not likely to be made the basis of a claim for similar rates on the alternating circuits, would be a good one to experiment on. After explaining the thing thoroughly to my board, and discussing it fully, we decided that it was a fair thing to do. We did not try it at the beginning of winter, when it would show most quickly, but tried it in April, and it was May, June and July before it was fully in operation. I commenced the arbitrary demand by simply assessing a man's house. It was empirical; no question about that. It is not based upon any theory. My customers were used to being assessed for water rates, and were used to paying a rental according to the size of the house, and as long as I took pains that there should be no discrimination, I felt sure that there would be no complaint from them. I made it clear to my customers that it could not harm them and might do them some good. I based my assessment, incidentally, upon the show or company rooms of the house, specially avoiding taking account of servants' rooms, laundries, cellars, porch lights or lights in barns. I took account of parlor, dining room and kitchen lighting, family and guest bedchambers, but not of servants' rooms or bathrooms. In other words, I did not take account of the rooms, in making my assessment, where people were prone to use gas. I took account only of the rooms where they would use electric light. Starting with this figure, so obtained, I compared a number of customers' bills and concluded that a man using electric light freely, and having a house such and such a size, would have a bill so much; and that being worked out gave me an empirical "demand" of 3 units for each of the rooms of the class I decided to assess. We put the plan in operation, and the first thing that happened was that two of my directors came in and wanted to know what had happened to their bills葉hey were unusually low. Each man was well-to-do. They had not economized on the electric light and had not fully understood the proposed change, and they wanted to know what had happened to their bills. Those bills were cut tremendously, and they intimated if other bills were cut the same way there would not be any revenue at all from the station. It took very little explanation to let them see what we were driving at, and they were as well pleased as any one. The good customers got the benefit of it, and the questionable customers got a little of the benefit and reached out for more. Then the people's bills began to climb up.

I mentioned the experiment last meeting, though it was too early to say what would become of it, but it provoked much discussion and personal inquiry, and, in response to the specific request from our Acting-President, I prepared this report for this occasion, at the same time fulfilling the promise made last year.

The over-installation of lamps is checked in our City by an inspection department, which holds us responsible for current being turned on to new wiring. We are indifferent about the installation of lamps; it cuts no figure. We do not care how many lamps a man installs. You see the point is this謡e are not a bit anxious to keep down the demand of that district. The maximum will come at a time when we have any quantity of power available. It is not a matter of any moment to keep down the lamps installed. In the business districts it is desirable we should do so. The business maxi-mum is a cumulative one, due to office buildings, stores and power during the winter months. The fact of our differential rate being based on the lamps connected, takes care of that. In the business section we apply the two-rate method with clock meters to a certain extent.

Alternative Fixed Charge Plus Running Charge Rate

We would get the same results on a system which would have a fixed charge per lamp installed to cover stand-by charges, such as interest on investment, and then a straight meter rate for the rest at the low rate. Let us say that our stand-by charges would come to perhaps 10 cents per lamp per month. We could make a contract with a customer and tell him that would be a fixed charge per month, so much per lamp, and then let all current used be paid for on the straight rate. Such a method could be established and we could afford to make the straight rate very low, if we had fixed charges and stand-by charges paid for. The cost then would be labor, oil, repairs, and coal, etc.

I think such a system would give a satisfactory and equitable rate schedule, but I anticipate serious difficulty in its application to miscellaneous lighting. Something of that kind has always been done. All the Edison companies carried a minimum bill per month for a long time. It simply means, "If we connect up to you at all, and stand by you to take the service, you ought to pay something for that; it does not mean that you shall use that amount of cur-rent if you don't want it, but we insist on a minimum bill." There are court decisions in some States against it. With power customers I should anticipate no difficulty in establishing such a schedule; but I should be exceedingly doubtful about the possibility of having it with general lighting customers, and particularly the residence customers. It is a pretty method, and theoretically - perfect; but you cannot get the average man to pay for the chance of using something. If he comes in at all, he wants to draw cards. They growl terribly about the minimum charge. I have argued the mini-mum charge with intelligent people and lawyers learned in the law. I said, "It is not meter rent, or rent for anything we should furnish. It is simply for the privilege of having the light connected; the same as having the grocery wagon come up every morning, when other-wise you take the chance of sending orders down to the store. You would not expect the grocery man to call every morning on the chance of getting an order once in a while. It is only proper that you should give him orders enough to justify his calling. Why should we stand ready, not to call on you every morning to ask if you want light, but actually be ready all the time to give you light, without getting something for it?" There are a number of customers just that way; no doubt about it. They say, "If we do not use your light we do not want to pay for it." That is the difficulty with the fixed cost charge. It is a pretty method and could be applied to the power business.

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