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Electric Residence Rates In Detroit (Part II)

( Originally Published Early 1900's )

At two previous conventions I have made statement of the experience of The Edison Illuminating Company, of Detroit, in the application of a differential rate to house lighting. This will presumably be the final statement. We have concluded that the results obtained warrant our adoption of the experimental method, but we are not prepared to advise that any other company should adopt it in full. We are stating our experience and conclusions merely for the information of others.

Conditions of the Experiment

To refresh your memories, I beg to say that the district served by our station "B," in which this experiment has been tried, is 95 per cent residential. The remaining 5 per cent of the business is churches and a very few stores. The maximum on week days comes at 6:30 p. m., or a few minutes later. On Sundays it comes at 7:15 to 7:45, and the Sunday maximum is the highest of the week. This is apparently due to the coincidence of supper time lighting in residences with the early lighting up of churches. In the past it has always been possible to assist station "B" from the business district station "A" at the time of the maximum residence load. In winters previous to the last, the downtown load has fallen off rapidly from 5:20 p.m. Last winter it fell off very slowly until six o'clock, so that the assistance to the uptown station was almost an addition to the peak. I think the condition last winter was unusual; and, moreover, we are installing a storage battery to help us out on the downtown peak, so that we may continue to regard the residence load as coming later than the load in the business district.

Until March 1897, the residence rate was 20 cents with discounts, which made the average net rate 17 cents. In March, 1897, we cut the gross rate to 16 cents per unit, and the discounts brought the average rate down to 14.1. In May, 1898, we began to apply a differential rate in the following manner: We rated each house according to the number of family or guest rooms in the house, omitting servants' rooms, pantries, etc., and notified each customer that after he had used a certain number of units at the 16 cents gross rate—the said number of units being proportional to the number of rooms—all additional supply would be furnished at a 5-cent gross rate. Discounts averaging about 11 per cent are allowed for prompt payment of bills.

Before making the change of rates, we made a very careful canvass of our residence customers; the results of which canvass I stated at the Sault Ste. Marie Convention. We found, among other things, that of a total of 446 customers connected to station "B," only 90 customers would have received any advantage by the reduced rate had it been in effect during the preceding twelve months.

Tabulation of Results

Owing to a change in the system of reading our meters, and of keeping our bill books, I am not able, without an amount of work which I do not feel warranted in undertaking, to give consecutive records from 1896 to the present time. There is a hiatus between December, 1897, and June, 1898. The Table No. 1, given herewith, compares therefore, the years 1896 and 1897, with the twelve month periods, June, 1898, to May, 1899, inclusive, and June, 1899, to May, 1900, inclusive. These two latter periods are selected as being the first twenty-four months of the full application of the differential rate. It is to be remembered that the reduction in the average receipts per unit sold in 1897, is due to a horizontal cut made in March, and not to the application of a differential rate; and that 14.5 cents is the average for the year, while 14.1 would be the average had the entire year's business been done at the 16-cent gross rate.

I call your attention in this table to the slow increase of the hours' use per annum of the station maximum. It indicates that a low rate does not (at least in residences) immediately create a demand at hours other than those already established by custom. Nevertheless the new demand is produced. The table shows this, and is confirmed by further observations. Thus, while our canvass early in 1898 showed that only 90 customers out of 446—say 20 per cent—so used their supply during the preceding twelve months, that they could have had any advantage of the second rate in the twelve months just past (being the second year of the differential rate), 212 out of 730—say 29 per cent—had the advantage. Again, in the first twelve months of the differential rate, approximately 25 per cent of the units sold were sold at the cheap rate, while in the second this had improved to 30 per cent.

On the other hand, the increased number of units sold indicates the residence business responds promptly to a reduction of rate. The response comes principally in the shape of new customers; much more so than in the shape of increased use by existing customers. This is indicated by Table No. 2, showing the number of customers served month by month, and the number of units sup-plied during twenty-six months of the application of the differential rate. I may add for comparsion that the customers, when we made our canvass in February and March of 1898, were 446; in March, 1899, 584, and in March, 1900, 705. Back in March, 1896, they were 361 and in March, 1897, 390.

You will also note a reduction, in the second twelve months, of the average units per customer. This is due to the new customers being mostly medium and small residences. We had most of the big ones to begin with.

Table No. 3 shows the relation, month by month, of the total earnings to the average receipts per unit sold. I ask you to note that as the total earnings go up, the average rate per unit goes down. This is obviously due to the operation of the differential rate, a customer buying more units in the winter months and thereby getting a larger portion of his total supply at the low rate. The Chicago Edison Company's plan of charging more units at the high rate in winter than in summer, tends to equalize the average rate throughout the year; but it is our observation that there is very little complaint about residence bills in the summer time, and that such complaints as still come in are generally annexed to the bill of some midwinter month. We think that the variation of the average rate inversely to the units sold, tends to peace and quietness, even though it may not be theoretically justifiable.

Interpretation of Results

I generalize as follows from our experience: In any good residence district there will be a certain number of customers who will take light at any price. A reduction of rate will cause these customers to use light more freely. If the reduced rate is in differential form, these customers will be more liberal in the use of light by their servants, in their barns, etc., and will indulge in electrical appliances, such as fans, laundry irons, etc., more freely than they would if the reduction in rate were horizontal; with a resultant improvement in the station load curve.

A certain number of other customers cannot be had until the cost of electric light is little in excess of the cost of gas lighting. These customers will pay somewhat more for electric lighting than for gas, because of increased convenience; or because, owning their own homes, they desire to avoid the smudging of their walls and decorations. The habits of these customers are fixed, and they will not be induced to alter their habits by the offer of a differential rate.

Beyond these two classes of customers, there are others who will continue to use gas because their houses are not wired and they do not see their way to make the initial expenditure for wiring. I think Detroit has less of this class than most other towns, as our builders have customarily wired their residence buildings for a great many years past.

Finally, there are people who will not use electric light in their residences until the price is absolutely below the price of gas. These people are presumably obliged to govern their habits by considerations of economy.

Residence lighting giving an average use of the station maximum of more than eight hundred hours is better worth cultivation than is much of the business which has heretofore been taken in preference; for instance, the lighting of offices and wholesale warehouses. The absence of a day load in purely residence districts makes it as a rule unprofitable to run a 24-hour station for residence lighting alone; but such lighting may profitably be combined with the general business of an Edison station. Residence lighting either does not lap at all over a factory power load, or laps so slightly that the resultant peak can be profitably taken care of by batteries.

A differential rate for residences has the following advantages: It gives the reduction of rate to the customers who deserve it. It encourages the use of fans, irons, etc., and of light in servants' quarters. When made in its simplest form it operates to prevent complaint about winter bills, while securing the highest rate for the naturally smaller summer bills.

The conclusion of my Company is, as already stated, that the operation of the differential rate for residence lighting is satisfactory, and we will continue its use on our Edison circuits. We further propose to apply it to the residence business connected on our leased alternating system, and have begun the application.

Exceptions to the Differential Rate Schedule

the Detroit rates are 95 per cent differential, and the exceptions are of a character which are easily explained. We have, for instance, a certain rate for the City, which is quoted once a year, to apply to all city departments, for engine houses, schools, police stations, etc. The rate is a straight rate. We have, however, laid down the rule that any customer having a straight rate for any reason, shall have his bills checked as they pass under the hands of the bill checker, and if the ordinary differential rate would be lower, it will be applied in that case. We have no hope of finding any one system of rates which will be automatically just to everyone. The intention is to impress on a customer having a so-called straight rate, the fact that the ordinary differential rate would be to his profit. There have been modifications, from time to time, usually made at the beginning of the year, in our different rates, but the rates on two different classes of business have remained absolutely fixed for two successive years, and for that matter, for a long time. One such class of business is arc lighting, on which the rate is 10 cents for the first 60 hours, and thereafter 5 cents. When we furnish the arc lamps we require a guarantee of $2 per month per lamp. If the customer furnishes his own arc lamps we do not require any guarantee. The other class is power, and in that the rate is 10 cents for the first 30 hours' use of the demand, and thereafter 5 cents; the demand being determined by actual inquiry, otherwise being rated on the size of the motor. It follows that any drop in the average rate indicates a condition of longer hours of use, and indicates an improvement of our load curve. In every case the result obtained is what we seek.

I will give you a few figures relating to our service for arc lighting. In the year 1898 we sold 302,708 units, at an average price of 7.2 cents, and in 1899, 520,176 units at an average price of 6.88 cents. On power in 1898, we sold 458,797 units at an average rate of 6.1 cents, and without any change of schedule in 1899 we sold 559,656 units, and the average rate fell to 5.61 cents. We feel that the drop in the average rate is an indication of an improved load curve. In other words, we are pleased to see the average rate fall off, the schedule rate being undisturbed.

The total increase in business is due partially to improved general business. The fall in the average rate of all classes of business has been from 9.05 cents to 8 cents per unit sold. In mentioning that 8-cent figure, I want to make a remark. In large cities, the company does not have to spend any time chasing business, as is the case in small towns. New York conditions are entirely different. I see the same thing in other cities. I was surprised to find in Boston the large hotels paying a 5-cent rate. I could not hold any hotel in Detroit on a 5-cent rate. An isolated plant would run cheaper, using the exhaust steam in the laundry, and also for cooking and other classes of work. I could not begin to do such business on a 5-cent rate in Detroit. I fancy that some alleged consulting engineer would immediately argue the question with the hotel keeper. In New York I hear of customers paying figures I simply could not collect. Another feature that is overlooked when we hear from some of the larger cities, is the fact that many companies are competing against a low initial rate. Cleveland has a 12 1/2-cent maximum rate to begin with. It means that some other class of business has to stand an undue proportion of fixed charges, in order to even things up. The Cleveland company tried the differential rates, and had an experience to which I will refer later. Another trouble comes to us in the fact that we are at any moment subject to an investigation of our accounts by a legislative committee. We want to be able to say that we make one system of rates which applies to everyone, and only varies with the conditions. We want also to be able to say we have tried honestly to make the rates such as will leave us a uniform margin of profit on each unit sold. I have not found it impossible to silence legislators on this point; but getting the best of the argument does not mean you have gained your point in such matters. It is essential we should establish an open set of rates which will bear examination as to general methods and leave us a reasonable margin of profit on all business done. The differential rate keeps off undesirable customers. We have to keep off business that would not pay us a profit. There are certain classes of business I am glad to see go to isolated plants—business that runs 200 hours a year. I have advised factory after factory to buy a dynamo and belt it up. I have explained patiently to these people that they can make their own light cheaper than I can, and showed them that the interest on their investment would be one-third of the interest on mine for their particular service. I am glad to see that kind of business go to isolated plants. If I average it, I do it at the expense of cutting off profitable business at the other end of the line which I want to get. An average rate will not go till my costs are averaged. They are not now averaged. If batteries did not cost more than steam machinery, it would be different. The day when that condition will prevail as to the relative costs of batteries and steam equipment, seems to be a long way ahead of us. When it comes, we can perhaps average our production all over the day, and make an average rate.

It is true that the Wright Demand System does not recognize differences in distances from the station. We have to average some things. These things we must average, as also some other similar points; for instance, the summer customer against the winter customer.

I have a special rate intended to induce people to shut down isolated plants during the summer. I explain that we have nothing else to do with the current just then, and if they will shut down the plant all summer, we will make a low rate. We try to follow the rule that every unit we sell shall bring us a small profit, not exceeding an average any more than is necessary to average up the losses on the business we would like to refuse.

As to the two-rate meters, we have some fifteen or twenty two-rate meters connected to isolated plants. We have told these gentle-men that we cannot displace their isolated plants on any calculations we can now make. Such plants do not exist in New York as we have them. There are some such in Chicago. We say to them, "We cannot get you to shut down your plant in the early evening, but your window lighting from six to ten o'clock is desirable business for us, and costs you a second watch of men." The result is, we can do the lighting after six o'clock cheaper than they can do it themselves. We have the peak of our load before six o'clock in the winter months. There is no peak in the summer months. From 1:30 until 6:30 p. m. we charge these plants the maximum rate, and after 6:30 the minimum rate. As a matter of fact, the clock is set to change dials at 6:15, so that we give good measure and the customers cannot find fault if the clock varies a little. The only way I know to make rates is so that you can lay the whole sheet before your customer and tell him he has his choice of rates. You can recommend him to take a certain rate which you offer him, but he is at liberty to take any other that he wishes. We provide two systems, because one system will fit one man and the other system another man. Any customer that wants to make the contract on the two-rate basis, because we give it to the isolated plant, can have it; but we say, as a rule, to such customer, that the ordinary contract is better for him, and so it is, as a matter of fact.

As It Is in Glasgow

I doubt if many of the gentlemen present are familiar with the new Glasgow schedule. Glasgow has run up against the limitations of the Wright demand system and has felt it necessary to do some tinkering. I believe that almost anybody who starts in to tinker with the Wright system, finds that a little advice about averaging is a necessary thing to take. The result of Glasgow's tinkering is that the Lighting Commission of the corporation, at a meeting held early this year, recommended fifteen different rates. Most of these rates have been formally adopted, and the adoption of the others is expected. I am interested in Glasgow. I used to live there. Moreover, the Glasgow output, rates, and average earnings per unit sold during the last few years, have been nearly identical with my own in Detroit, and their troubles in adjusting rates to business have paralleled mine in such a manner that I have found their experience unsually instructive.

Moreover, Glasgow is a model municipality and really is a constant seeker after justice and successful in the search beyond ordinary, so that any system of rates adopted there may be believed to be capable of logical defence and presumably mathematically correct.

With these preliminary remarks I call your attention to the schedule recommended by the Lighting Committee. The distribution system was at 100 volts on each side of the three-wire system .It is now in course of change to 250 volts on each side with 500 volts across the outers. There is an intermediate stage of 200 volts on each side. You will remember that in Glasgow the consumer buys the lamps. If the station had been buying the lamps, the change to high voltage might not have been so energetically advocated by Mr. Chamen, the engineer in charge. The original rate system offers no inducement to a consumer to change his equipment to the higher voltage, thereby charging himself with lower lamp efficiency and greater breakage, so the first modification of the Wright system is to make different rates for each voltage, that for the high voltage being the lowest. Consequently the schedule on the demand system with the Wright meter connected is 6d (12 cents) for the first hour at any voltage, and for the additional hours 2 1/2d (5 cents) at 100 volts; 2d (4 cents) at 200 volts; and 1 1/2d (3 cents) at 250 volts. You will notice that the differentiation for voltage is on the long-hour units.

The City also, however, does business on the fixed charge method—the old Manchester or Hopkinson method—or the Niagara method, if you please. On that method the annual charge per kilowatt connected is, at 100 volts, £7, os, 8d; at 200 volts, £6, 15s, 5d, and at 250 volts, £6, 5s. In. addition to this annual charge there is a meter charge of 1 1/2d per unit. You will notice that for some reason, not obvious to me, the differentiation for voltage is under this method done on the fixed charge and not on the charge per unit supplied. No doubt the method is correct. I never knew any Glasgow municipal method which was not mathematically correct; but I don't profess to understand the change in the location of the bonus for the use of high voltage.

This would seem to be variation enough in the interest of absolute justice to consumers, but there still remain a bunch of straight schedule rates. First, there is the 5-hour per day consumer. It appears, in spite of the theoretical accuracy of the rate system—accuracy carried to the point of pennies per annum—that the 5-hour per day consumer is not already favored enough, so he may have his supply all at the low rate without any high charge for the first hour, or without any annual charge. The 5-hour man is given a straight rate, at 100 volts, of 2 1/2d; at 200 volts, of 2d; and at 250 volts, of 2d.

Then there come the churches. Churches in Glasgow are a power in the land. The ordinary Scotch church is open at eleven Sunday morning, and at two Sunday afternoon, and is not known to be open at any other time in the year, excepting twice on each half-yearly fast day. The total times the church is open is therefore 52 times plus 4, and all in the daylight. If there be an accidental meeting, or if, by reason of fog which is deep and dark at times in Glasgow, there is light required at a stated session, it would appear logical that the highest rate should be paid. There are exceptions, of course. I remember a Catholic Chapel on the hill where I used to live, that had about seventeen services a day. In my memory that church was not a very well lighted place. It seemed to depend on candles and did not always have the candles; so it ought to be an excellent customer if it can use electric light at all, and would get on the ordinary demand schedule, at least, as low a rate as a "publichouse"—that is to say -a saloon. This was the exception, however, and while I have no doubt that that special rate to churches, of 3d per unit, has some logical justification, I am afraid that the justification must be looked for in the fact that the use of light is outside of the hours of heavy load. It cannot possibly be that the churches have used their "pull."

Another class which is specially favored is the domestic consumer—the residence consumer, as we call him. Here the demand system has always been difficult of application because of the maximum demand occurring only on the few occasions of a general lighting up. The Glasgow Committee makes a special straight rate and uses no demand indicator. The rate is 4d at either 100 or 200 volts, and 3 1/2d at 250 volts.

Finally, and most mystifying of all, is the motive power rate. If the demand system, or the fixed charge system, favors any one it is the 3,000 hours per annum motive power customer. Nevertheless Glasgow has, (or is to have) for motive power, yet another special straight rate, without demand meter or fixed charge, of 2 pence (4 cents) per unit at 200 volts, and 1 1/2 pence (3 cents) per unit at 250 volts. I give it up. If it were not Glasgow I should say it meant an attempt, regardless of principle, to develop a new and desirable line of business—but Glasgow?—Never!

That is the end of the Glasgow story. Anyone is at liberty to average it up. It attempts to give every one abstract justice, and I doubt not if Mr. Chamen were present, or the honorable Councillor who is Chairman of Mr. Chamen's Committee, it would be proved that the schedule did absolute justice to everybody.

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