Tool
Demand charge and ratchet calculator
One hot afternoon can set the floor for your demand charges for the following eleven months. Most commercial buyers have never been shown this clause.
A demand ratchet bills you on the greater of this month's peak and a percentage of a past peak. An account measuring 40 kW this month but with a 58 kW peak in the trailing window under an 80% ratchet is billed on 46.4 kW, not 40.0 kW — costing $80.00 extra this month alone.
Source: Calculation engine v1.0.0 · 2026-10-31
- 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 formula
billedKW = max( thisPeriodPeakKW,
ratchetPercent x trailingPeakKW,
contractMinimumKW )
demandCost = billedKW x demandRatePerKW
Why this clause matters so much
A ratchet means a single interval — one afternoon when every piece of equipment happened to run at once — can raise the floor under every bill for the following year. It is entirely legal, it is printed in the filed tariff, and it is very rarely explained to the customer at the point of sale, because the party selling supply earns nothing from it.
Two consequences follow. First, avoiding a peak is worth far more than its own month. Second, if you are already inside a ratchet period, the recovery is slow and there is a specific date on which the floor drops — which is worth knowing before you plan any load addition.
Full detail: ratchet clauses explained, and what a demand charge is.
How to find out whether you have one
The ratchet is not on your bill. It is in the filed tariff for the rate schedule your account sits on, 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.
Two variants are common. A rolling ratchet looks back a fixed number of months from wherever you are now. A seasonal ratchet looks specifically at summer months, which means a July peak governs the following winter even though the winter load is nothing like it. Which variant applies changes when the floor drops and therefore when a load addition carries the least penalty.
If your bill shows a billing demand figure that is higher than any demand you believe you actually drew, a ratchet is the most likely explanation and it is worth reading the tariff before anything else.
We read the ratchet terms from your utility’s filed tariff and check 12 months of bills for whether you are currently being billed on a floor rather than on actual demand.