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4. The profitable class who used their demand more than about 192 hours per day on the average throughout the year.

From the foregoing profit and loss account it will be seen that in consequence of the highest price allowable being fixed at Brighton at 7d. per unit, it was necessary to charge the longer users of electricity at a substantial profit to recoup the losses incurred in having to supply the unprofitable, although this was nothing approaching the rate of profit that would have been charged to them had all consumers paid the uniform price per unit necessary to produce the same revenue.

Conclusions

The results of the above presumably correct methods of analysis being applied to existing electricity works' accounts appear to so thoroughly confirm Dr. Hopkinson's startling conclusions, and to warrant so many fresh departures from the usual methods of attempting to develop the business of Electricity Supply, that the author sincerely trusts the convention will carefully criticise the principles enunciated, and either frankly combat, refute or accept the following far-reaching conclusions the author has been forced to realise.

1. It is the duty of municipalities to charge a uniform rate of profit on the cost of supplying electricity rather than a uniform price to all consumers, and much more so in the case of electricity than with gas, because of the much greater percentage standing charges bear to the total cost in the former than in the latter case.

2. To charge the same amount for the electricity consumed by 100 lamps burning 4 hours a day as that by 400 lamps burning one hour per day is manifestly unjust to the longer user, as only a quarter of the plant and copper are required to produce and supply it as are required by the shorter user.

3. The practice of charging profitable and unprofitable consumers the same price per unit must necessarily have the effect of keeping the average cost and price higher, consequently the supply business smaller, than by charging a uniform rate of profit to all consumers, because, having to charge the profitable consumer in order to recoup the loss incurred in supplying the unprofitable must tend to prevent the former using it as liberally as if he had not to pay such a high rate of profit. Therefore electricity can be produced at a lower price on an equitable sliding scale of charges than on a uniform price.

4. The extremely low price at which electricity can be profitably supplied to consumers after they have paid off their proportion of the standing charges much more than compensates for the difficulty of understanding a uniform rate of profit tariff, as shown by the increasing rate of receiving applications for electricity in towns where differential charges and low prices to long users are in vogue.

5. It is in every sense advisable to retain the initial charge per unit at the highest permissible figure, and the charge for current after the standing charges are paid for at as low a figure as is compatible with making a safe annual net profit; as experience proves that consumers judge their electricity accounts solely on the total amount, and those consumers who are always charged the highest price are naturally the least worth having and the only ones likely to complain of the equal profit system of tariff.

6. It is erroneous to suppose that by increasing the size of the business the loss on supplying the ordinary short hour user will diminish as time goes on; as offices and similar short-time consumers generally light up at dusk, an increased number of such can only aggravate the peakiness of the load curve, and cannot therefore reduce the standing charges per kilowatt demanded, on which the cost of supplying them mostly depends.

7. It is much fairer to the ratepayers to try to limit the supply to consumers who are willing to pay their share of the costs than to have to rapidly extend the supply works in order to take on more unprofitable as well as profitable consumers, or, in other words, it is more justifiable for a municipality to lose the unprofitable consumers by raising the initial price, and to take in their place more profitable ones, than to extend the works directly their capacity is reached.

8. The enormous cost of getting ready to supply electricity, compared to the cost of continuing to supply when ready, can be best realised by remembering that it costs two and a half times as much to supply a unit to a consumer who uses his lights on the average only one hour per day as it does to another who uses them three hours.

9. With coal at the price paid in Brighton, the same reduction can be made in the average cost of producing electricity by so arranging the tariff as to improve the load factor 3 per cent as if the coal bill had been reduced 15 per cent. Although the author does not wish it to be understood that he discourages the attempt to save coal, he desires to point out that it is much more worth while trying to improve the load factor than to reduce the coal bill. Since the differential tariff has been adopted at Brighton, the load factor has improved 50 per cent, showing the improvement wanted is not difficult to attain. In the Midlands, where coal is half the price paid at Brighton, probably the same reduction in the average total cost of electricity would be made by improving the load factor 3 per cent as if the coal bill had been reduced 30 per cent.

10. The differences in the financial results of central supply stations are more due to the different load factors, and the varying economy in standing by costs, than by any great differences in the amount of running costs.

11. The rapid fall in the cost of supplying electricity as the average time of use increases makes the small householder a much more profitable class to supply, both in his residential and shopping districts, than the residences and shops where the wealthy dwell and deal, owing to the frequent absence from home of this class and the early closing of their shops.

12. One of the most important consequences of the fact that electricity can be profitably supplied from central stations to consumers at the rate of 812d. per unit for the first 365 hours in each year they use their demand, and for something between 12d. and id. (according to the price of coal) for any electricity consumed afterwards in the same year, is that street lighting and that of basements or dark buildings lighted all day long, can be more cheaply done by electricity than by any other form of artificial light, as in these cases, where the use is on the average eleven hours per day, or 4,000 hours per annum, the inclusive cost for the electricity consumed will not generally exceed 1/2d. per unit.

The fact that up to the present only the very fringe of street lighting has been touched by the Electricity Supply undertakings appears to the author a sure sign that Dr. Hopkinson's conclusions have been hitherto ignored by most of the responsible managers, and to again direct and urge them to give their closest attention to them has been the author's object in writing this lengthy paper.

Equitable, Uniform and

Competitive Rates

by

HENRY L. DOHERTY

Presented before the
National Electric Light Association

May 1900

(Reprinted from Proceedings of National Electric Light

Association, May 1900, pp. 291-321)

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