Ratchet clauses: when one afternoon sets your bill for a year

• 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 mechanic

Under a ratchet clause, billed demand is not simply what you drew this month. It is the greater of what you drew this month and a stated percentage of a prior peak.

billedKW = max( thisPeriodPeakKW,
                ratchetPercent x trailingPeakKW,
                contractMinimumKW )

The ratchet percentage varies by utility and by rate schedule, commonly falling somewhere between 50 and 80 percent, and the trailing window is frequently the preceding eleven months. Both figures must be read from your own tariff — they are the two numbers that determine how much a single peak costs you and for how long.

A worked example

Suppose an account peaks at 58 kW during a hot July afternoon when every rooftop unit is running and the kitchen is at full service. For the rest of the year its actual peak sits around 40 kW.

Under an 80 percent ratchet, the floor is 46.4 kW. Every month for the following eleven months, the account is billed on 46.4 kW rather than on the 40 kW it actually drew. At a demand rate of $12.50 per kW that is $80 a month it did not incur, for eleven months, from one afternoon.

The calculator runs this for your own figures.

Rolling and seasonal variants

Two forms are common and they behave very differently.

A rolling ratchet looks back a fixed number of months from wherever you currently are. The floor decays gradually as the offending peak ages out of the window.

A seasonal ratchet looks specifically at summer months. A July peak then governs the following winter, even though winter load may be nothing like it. Under this variant the floor does not decay gradually — it persists until the defined period ends and then drops in one step.

Which variant applies determines when the floor drops, and therefore when adding load carries the least penalty. If you are planning to install equipment that will raise your peak, the difference between doing it in month two and month ten of a ratchet period can be material.

Why it exists

It is not arbitrary. The utility sized and reserved infrastructure to serve your maximum draw, and that infrastructure sits available to you whether or not you use it. The ratchet recovers the cost of holding that capacity for you rather than letting a one-month spike be effectively free.

Understanding the rationale matters practically: it explains why arguing about a ratchet rarely works, and why the productive response is to avoid setting the peak in the first place.

How to tell whether you are inside one

The ratchet is not on your bill. It is in the filed tariff for your rate schedule, published by your utility and on file with the state commission. Look for language about billing demand being the greater of the current month's measured demand and a percentage of a prior maximum.

The symptom that should send you to the tariff is a billed demand figure higher than any demand you believe you actually drew. If your bill shows both measured and billed demand and they differ, you are being billed on a floor.

What to do about it

Before a peak is set, the work is peak management: staggering equipment starts, shifting flexible loads out of the existing peak window, and where the economics support it, automatic load shedding at a threshold.

After a peak is set, the options narrow considerably. You can identify the date the floor drops and plan around it. You can check whether the peak was caused by a fault or an equipment malfunction, which occasionally supports a discussion with the utility. And you can check whether a different rate schedule with a lower demand rate or a weaker ratchet is a better fit for your shape.

What you cannot do is switch supplier out of it. A ratchet is a delivery-side term and it follows the meter.

Common questions

What is a demand ratchet clause?

A tariff clause that bills demand on the greater of the current period peak and a stated percentage of the highest peak in a trailing window, commonly the prior eleven months. One high interval can therefore raise the billed demand floor for months.

How long does a demand ratchet last?

It depends on the tariff. A rolling ratchet typically looks back eleven months and decays as the peak ages out. A seasonal ratchet ties to defined summer months and persists until that period ends. Both figures are stated in the filed tariff.

Can I get a demand ratchet removed?

Not generally. It is a term of the regulated tariff rather than a negotiated contract. The practical responses are peak management before a peak is set, and rate schedule review afterwards.

Related