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About the Load Factor Adjustment

The IREA Board of Directors adopted proposed changes to the Association’s Rates, Rules and Regulations. The adopted rate schedule creates a “Load Factor Adjustment” (LFA) that will be applied to new services and new interconnections with our system after December 30, 2015. The LFA does not apply to existing IREA customers unless they take an action after that date that would require the installation of a new service or interconnection, such as the construction of a new service location or the interconnection of a rooftop solar system or other net-metered generator.

The load factor adjustment would add a charge to those new customers’ bills in months in which their peak demand is high when compared to their overall energy usage. When this happens, their load factor falls so low that IREA cannot fully recover its capacity-related costs of providing service.

IREA’s current residential rate is designed to recover capacity-related costs through the energy charge, so if a customer uses a small amount of energy compared to the capacity they used, some capacity-related costs go unrecovered. Under the LFA, a customer with very low usage, but comparatively high peak demand would have a low load factor and the LFA would apply at a cost of $4.04 to $4.13 per kilowatt of peak usage, depending on where the customer lives.

Overall, this new LFA does not apply to the vast majority of new residential customers. Load factor is calculated as the average demand over a period of time divided by the peak demand over the same period of time. The proposed LFA is only triggered if the load factor for an unincorporated residential customer falls below 9% or below 10% for an incorporated residential customer. For reference, the typical load factor for an average residential customer is about 23%.

As a non-profit electric cooperative, our interest isn’t profit. Neither is our interest the expansion – or decline – of the solar industry. Our interest, rather, is to find a way to provide our customers what they want in a way that doesn’t favor or disadvantage one group at the expense of or to the benefit of others. To that end, we are proposing a way to recover costs for services in circumstances where our current rate structure causes us to provide service at a loss.

What is Load Factor?

Wikipedia defines load factor as “the average load divided by the peak load in a specified time period.” In other words, load factor (LF) describes how erratically electricity is used by measuring the average use of electricity over a time period and then comparing that average load to the peak load during the same time period.

For example, suppose a customer’s use of electricity throughout a 24-hour period looked like this:

We can see in this example that the peak demand or “load” occurred around 6:30 to 7 p.m. and measured 7.15 kW. The energy used during the day is represented by the gold-colored area under the charted line, and can be calculated by adding all of the 24 hourly loads together. In this case, the electrical energy used in the 24-hour period was 50.7 kWh.

The phrase “average demand” refers to the level of demand that would have occurred if the total energy was spread evenly over the entire time period. It would be as if the mountain profile of the load shape in the figure above was melted so that the peaks poured down into the valleys until every hour was filled to the same level. Mathematically, the average demand is found by dividing the total energy used throughout the time period by the number of hours in the time period. In this case, when we divide the 50.7 kWh energy value by 24 hours, we find the average demand is 2.1 kW. Graphically, the average demand looks like this:


The load factor during the example day can now be found by dividing the average demand of 2.1 kW by the peak demand of 7.15 kW. This results in a LF of 29.5%.

Load Factor During Periods of Time Longer Than a Day

Simply stated, a high load factor corresponds to power that is used consistently and a low load factor corresponds to power used more intermittently.

Example 2: Let’s say an artist operates an electric kiln but only uses it once each month to batch-fire all of the pottery at one time. Suppose, too, that this firing operation requires the kiln to run for 10 hours. The kiln is “nameplate” rated at 12,000 watts, but will very likely cycle on and off with different heat requirements and not operate at its nameplate capacity for the entire time period. For simplicity, we will say that the kiln will peak an average load of 8.4 kW. The energy consumption during this time would be 8.4 kW * 10 hours or 84 kWh. The load factor for those 10 hours would be 100%.

However, if we want to find the weekly load factor, and determine that no additional energy is consumed by the artist throughout the week, the LF would decrease significantly. This is because the average demand, which is used in the LF calculation, is equal to the energy value divided by the number of hours in the time period (recall the earlier example). The calculation that previously measured LF over a 10-hour period of time will now measure the LF over a seven-day (168-hour) period. In this case, the LF will be approximately 5.9%:

If we expand the time period to a typical month (30 days) and determine the load factor, again assuming that no additional energy is used, the LF will drop to 1.4%:

Most residential services have monthly LFs of approximately 20%. If you would like more information regarding load factor, please contact Engineering Services at (303) 688-3100, Ext. 5497.