What are demand charges and how do they fit into your utility rate structure?
As a commercial customer, you likely see—and pay for—two types of charges on your monthly utility bill.
The first of these is your energy charge, which is calculated by multiplying your total energy use for the month (measured in kilowatts-hours) by your energy rate.
Simple, right?
The other charge you’ll see on your monthly bill is a little more complicated.
It’s what’s known as a demand charge and is typically calculated by looking at the greatest amount of power (measured in kilowatts) you need during any of thousands of “demand intervals” that make up a billing cycle.*
In most instances, a demand meter literally measures (and averages) your power “demand” in 15-minute timeframes throughout the month, and reports this information back to your utility.*
This reported peak-kilowatt level is then multiplied by a specific rate, which determines your demand charges.
For example, if your utility charges $10 per kilowatt (kW) per month, and your peak-demand interval power requirement is 100 kW within a month, you’ll pay $1,000 in demand charges that month ($10 x 100 kW).
Remember, this is on top of your energy charge.
Why are demand charges applied to energy usage in business?
Utility companies are responsible for making sure they can provide the maximum amount of electricity that you might need at any point in the day.
For utilities, the real challenge comes in maintaining enough capacity to satisfy your and all their customers’ electricity needs (for instance, on a hot day when everyone’s running their AC at the same time).
To do that, utilities must keep all sorts of expensive equipment on constant standby “just in case,” including substations, transformers and generating stations.
This capacity is extremely expensive to build and maintain, and commercial electricity demand charges are used to help pay those costs.
WANT TO LEARN MORE & PRICE PROTECT YOUR BUSINESS CONTACT ME:
André D. Henderson
Sr. Energy Consultant
Main: 469-720-0777
Cell: 214-664-5154
andre@eweg.com
As a commercial customer, you likely see—and pay for—two types of charges on your monthly utility bill.
The first of these is your energy charge, which is calculated by multiplying your total energy use for the month (measured in kilowatts-hours) by your energy rate.
Simple, right?
The other charge you’ll see on your monthly bill is a little more complicated.
It’s what’s known as a demand charge and is typically calculated by looking at the greatest amount of power (measured in kilowatts) you need during any of thousands of “demand intervals” that make up a billing cycle.*
In most instances, a demand meter literally measures (and averages) your power “demand” in 15-minute timeframes throughout the month, and reports this information back to your utility.*
This reported peak-kilowatt level is then multiplied by a specific rate, which determines your demand charges.
For example, if your utility charges $10 per kilowatt (kW) per month, and your peak-demand interval power requirement is 100 kW within a month, you’ll pay $1,000 in demand charges that month ($10 x 100 kW).
Remember, this is on top of your energy charge.
Why are demand charges applied to energy usage in business?
Utility companies are responsible for making sure they can provide the maximum amount of electricity that you might need at any point in the day.
For utilities, the real challenge comes in maintaining enough capacity to satisfy your and all their customers’ electricity needs (for instance, on a hot day when everyone’s running their AC at the same time).
To do that, utilities must keep all sorts of expensive equipment on constant standby “just in case,” including substations, transformers and generating stations.
This capacity is extremely expensive to build and maintain, and commercial electricity demand charges are used to help pay those costs.
WANT TO LEARN MORE & PRICE PROTECT YOUR BUSINESS CONTACT ME:
André D. Henderson
Sr. Energy Consultant
Main: 469-720-0777
Cell: 214-664-5154
andre@eweg.com
