

Definition-: The rate at which electrical energy is supplied to a consumer is known as tariff.


Objectives of tariff: Like all other commodities, electrical energy is also sold at such a rate so that it not only returns the cost but also earns reasonable profit. Therefore, a tariff should include the following items:

1) Recovery of cost of producing electrical energy at the power station.

2) Recovery of cost on the capital investment in transmission & distribution systems.

3) Recovery of cost of operation & maintenance of supply of electrical energy e.g., metering equipment, billing etc.

4) A suitable profit on the capital investment.




A tariff must have the following desirable characteristics:

1) Proper return: The tariff should be such that it ensures the proper return from each consumer. In other words, the total receipts from the consumers must be equal to the cost of producing & supplying electrical energy plus reasonable profit. This will enable the electric supply company to ensure continuous & reliable supply to the consumers.

2) Fairness: The tariff must be fair so that different types of consumers are satisfied with the rate of charge of electrical energy. Thus a big consumer should be charged at a lower rate than a small consumer. It is because increased energy consumption spreads the fixed charges over a greater number of units, thus reducing the overall cost of producing electrical energy.


3) Simplicity: The tariff should be simple so that ordinary consumer can easily understand it. A complicated tariff may cause an opposition from the public which is generally distrustful of supply companies.


4) Reasonable profit: The profit element in the tariff should be reasonable. An electric supply company is a public utility company & generally enjoys the benefits of monopoly. Therefore, the investment is relatively safe due to non-competition in the market. This calls for profit to be restricted to 8% or so per annum.


5) Attractive: The tariff should be attractive so that a large number of consumers are encouraged to use electrical energy. Efforts should be made to fix the tariff in such a way so that consumers can pay easily.


The several types of tariff are the following:

1) Simple tariff: When there is a fixed rate per unit of energy consumed, it is called a simple tariff or uniform rate tariff.

In the type of tariff, the price charged per unit is constant i.e., it does not vary with increase or decrease in number of units consumed. The consumption of electrical energy at the consumers’ terminal is recorded by means of an energy meter. This is the simplest of all tariffs & is readily understood by the consumers.


2) Flat rate tariff: When different types of consumers are charged at different uniform per unit rates, it is called a flat rate tariff.

In this type of tariff, the consumers are grouped into different classes & each class of consumers is charged at a different uniform rate. The different classes of consumers are made taking into account their diversity & load factors.


3) Block rate tariff: When a given block of energy is charged at a specified rate & the succeeding blocks of energy are charged at progressively reduced rates, it is called a block rate tariff.

In block rate tariff, the energy consumption is divided into blocks & the price per unit is fixed in each block. The price per unit in the first block is the highest & it is progressively reduced for the succeeding blocks of energy.


4) Two-part tariff: When the rate of electrical energy is charged on the basis of maximum demand of the consumer & the units consumed, it is called a two-part tariff.

In this tariff, the total charge to be made from the consumer is split into two components viz., fixed charges & running charges. The fixed charges depend upon the maximum demand of the consumer while the running charges depend upon the number of units consumed by the consumer. Thus, the consumer is charged at a certain amount per kW of maximum demand plus a certain amount per kWh of energy consumed i.e.,

Total charges = Rs (b * kW + c * kWh)

b = charge per kW of maximum demand

c = charge per kWh of energy consumed

This type of tariff is mostly applicable to industrial consumers who have appreciable maximum demand.


5) Maximum demand tariff: It is similar to two-part tariff with the only difference that the maximum demand is actually measured by installing maximum demand meter in the premises of the consumer. This type of tariff is mostly applied to big consumers & is not applicable to small consumers.





6) Three part tariff: When the total charge to be made from the consumer is split into three parts viz., fixed charge, semi-fixed charge & running charge, it is known as a three-part tariff.

Total charges = Rs (a + b * kW + c * kWh)

a = fixed charge made during each billing period. It includes interest & depreciation on the cost of secondary distribution & labour cost of collecting revenues,

b = charge per kW of maximum demand

c = charge per kWh of energy consumed


7) Power factor tariff: The tariff in which the power factor of the consumers load is taken into consideration is known as power factor tariff.

The following are the important types of power factor tariff:

(i) kVA maximum demand tariff: It is modified form of two-part tariff. In this case, the fixed charges are made on the basis of maximum demand in kVA not kW. As kVA is inversely proportional to power factor, therefore, a consumer having low power factor has to contribute more towards the fixed charges.

(ii) Sliding scale tariff: This is also known as average power factor tariff. In this case, an average power factor, say 0.8 lagging, is taken as reference. If the power factor of the consumer falls below this factor, suitable additional charges are made. On the other hand, if the power factor is above the reference a discount is allowed to the consumer.

(iii) kW and kVAR tariff: In this type, both active power (kW) & reactive power (kVAR) supplied are charged separately. A consumer having low power factor will draw more reactive power & hence shall have to pay more charges.


This is all about tariff and its various types.

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