Demand charges: paying for how hard you draw, not how much you use

• what you drew
• billed but not drawn
• the floor the spike set

Schematic, not an account. The ratchet percentage, the window it looks back over, and whether it rolls or resets seasonally are all set by your own filed tariff — those three facts decide how long the shaded area lasts.

The distinction that makes demand charges make sense

A kilowatt-hour is a quantity of electricity. A kilowatt is a rate of draw. A demand charge bills the rate, not the quantity.

The analogy that usually lands: consumption is how much water you used this month; demand is the largest pipe you needed at any single moment. The utility has to build and maintain infrastructure capable of serving your maximum draw, even if you only hit it for fifteen minutes on one afternoon in July. The demand charge recovers the cost of that capacity.

This is why the charge is not unfair, and also why reducing your total consumption may not reduce it at all.

How demand is measured

Most commercial tariffs measure demand over a fixed interval, commonly fifteen minutes, though some utilities use thirty. The meter records average draw across each interval, and the highest such interval in the billing period becomes your billed demand.

The interval length matters more than it first appears. A large motor starting for thirty seconds may barely move a fifteen-minute average. Four pieces of equipment all running for the full fifteen minutes will move it a great deal. Demand charges reward staggering, not shortening.

Verify the interval and the measurement basis in your own utility's filed tariff. It is stated there, it varies between utilities, and it changes what a load-shifting effort is worth.

What demand charges typically cost

Demand is charged in dollars per kilowatt of billed demand per month. The rate varies substantially by utility, by rate schedule, by voltage level and often by season, with summer rates commonly higher than winter.

We do not publish a representative figure here, because a demand rate is only meaningful alongside the specific tariff it belongs to, and a number on a page invites exactly the false comparison this site exists to prevent. Your rate is printed in your utility's filed tariff for your rate schedule.

What is worth internalising is the arithmetic: billed demand multiplied by the demand rate, every month. A peak set once is paid for repeatedly, and under a ratchet clause it can be paid for long after the event that caused it.

Why reducing consumption may not reduce your demand charge

This catches people out constantly. A business installs efficient lighting, cuts kilowatt-hours by fifteen percent, and finds the demand charge unchanged. The reason is that lighting ran continuously and was never what set the peak. The peak was set by the HVAC compressors and the kitchen line starting within the same fifteen-minute window.

Reducing a demand charge requires reducing the highest interval, which usually means one of three things: shifting a load to a different time, staggering simultaneous starts, or shedding load automatically when the meter approaches a threshold. All three are operational changes rather than equipment purchases, which is why they are frequently the lowest-cost intervention available.

Finding out whether you have one

Look for a kilowatt figure on your bill, often labelled demand, billing demand or maximum demand. If there is no kW figure anywhere, the account is probably not demand-metered — which is itself useful to know, because it constrains which rate schedules you are eligible for and means demand management has nothing to work on.

If there is a kW figure, check whether it matches your understanding of what you actually drew. A billed demand noticeably higher than any plausible draw is the signature of a ratchet clause, and that is worth reading the tariff for.

What a supplier can and cannot do about it

Nothing. Demand charges are set by the regulated utility tariff. A retail supplier prices the supply portion of your bill and has no ability to alter a demand rate, a demand threshold or a ratchet clause.

This is worth stating plainly because the opposite impression is widespread. Demand charges are attacked through load management and rate schedule selection, both of which work identically in competitive and fully regulated markets.

Common questions

What is a demand charge?

A charge based on the highest rate at which an account drew electricity during a billing period, usually measured over a 15-minute interval and billed in dollars per kilowatt. It is separate from the charge for kilowatt-hours consumed.

How is demand measured on a commercial electricity meter?

The meter records average draw across fixed intervals, commonly fifteen minutes. The highest such interval in the billing period becomes the billed demand. The exact interval length is set by the utility tariff and varies.

Can a supplier reduce my demand charges?

No. Demand charges are set by the regulated utility tariff. They are reduced by lowering the peak interval itself or by moving to a rate schedule that better fits the load shape.

Why did my demand charge stay the same after I cut my energy use?

Because reducing total consumption does not necessarily reduce the highest interval. If the equipment you made more efficient was not what set the peak, the demand charge will not move. Demand responds to staggering and shifting, not to overall reduction.

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