Understanding Utility Demand Charges

What are Demand Charges

Your electricity bill contains two parts. The Energy charges, which is the total amount of electricity you consumed. And the Demand Charges, what your “peak usage” is.

How Demand Charges are Calculated

Utilities calculate their electricity demand charges (DC) by the highest 15 minute average usage (interval) that is recorded by the demand meter for that month. If your facility tends to use a lot of power over short periods, your DC will comprise a larger part of your bill. If you use power at a more consistent rate throughout the month, your DC will generally be a smaller part of your bill.

Why do Demand Charges exist

DC are used to cover the Utility’s set costs of specific levels of electricity to their customers. The utilities have to provide enough capacity to ensure that all of their customers’ energy needs are met at all times. This is done by maintaining enough power plants to serve the all the customers and that requires a great deal of money and an excellent energy management system.

Demand Charges also help to encourage customers to reduce their energy usage during peak time and shift their usage time as well from peak to non peak. This allows the utilities to charge customers more who have variable electricity usage and less to customers that have more steady load.

DC normally are applied to commercial and industrial customers that are at certain bill levels and have Time of Use Rates. A demand meter is installed if a customer hits a certain demand level on a consistent basis. The demand billing doesn’t end unless the monthly energy usage has gone down consistently for a measurable amount of months. DC are used in all 50 states, but the charges vary. DC are also generally higher in the summer than winter, due to increased electricity usage.

Should you be concerned about Demand Charges

DC are usually between 30 and 70 percent of a commercial or industrial customer’s electricity bill. These costs continue to increase throughout the United States, even though energy prices are going down. There are a few factors that are causing this increase. One big factor is the aging power grid. It will require more maintenance and infrastructure updating. These costs are passed along to customers. Solar power is also growing and this can make peak loads more sensitive due to weather conditions (clouds, etc). These factors will cause more volatility in the loads put on the grid.