Demand Charges Explained: What Are They, and How Do They Work?
Understanding the basics of energy billing is the first step to properly managing your facility’s energy usage. Commercial electricity bills consist of more than the total energy expenditure over a set billing cycle — they also include demand charges.
In certain rate classes, territories and months of the year, demand charges could make up more than half of your bill.
This post will explain the demand charges in kilowatts (kW) on your electricity bill, how it relates to electricity usage in kilowatt-hours (kWh) and how you can use this information to benefit your business.
What Is a Demand Charge?
The rate at which energy is consumed is a demand charge. These charges, measured in kilowatts, are based on the amount of energy consumed within a demand interval — these stretches last 15 or 30 minutes — and represent the high costs electric companies have to pay for transmission and generating capacity that, for the most part, sits idle.
Demand charges can significantly rack up monthly electric bills for customers whose utility rates include them. These charges generally apply to industrial and commercial customers, who tend to have higher peak power demand or peak loads than residential customers.
A utility company will scrutinize the maximum amount of power that a customer used in any interval during the billing cycle to apply demand charges.
Consumers will know the power demand they are allowed to have based on the utility rates specified by their provider. Exceeding this demand for several months in a row can result in higher demand charges and a changed rate.
How Can You Benefit From Understanding a Demand Charge Rate?
Understanding the role demand charges play in your electricity bill can help you lower costs. These charges can comprise a significant portion of your statement as a commercial customer.
If not managed, demand charges can make up a significant portion of your energy bill. In some cases, it can even exceed the amount spent on usage. With this in mind, monitoring and controlling your peak usage can help you lower your electricity bill. You can do this by managing your highest points of demand. Identify peak times and spread out your usage throughout the day to avoid spiking usage at one point in time.
How Do Utilities Charge for Electricity?
To determine the demand charge for a given month, utilities multiply the maximum power demand by the demand charge rate of the prevailing utility rate.
A utility’s precise approach to billing will vary. For example, some rate structures include a multitude of demand charges, with lower rates during off-peak or partial-peak hours.
Usage vs. Demand Charges
Your energy bill can be made up of both usage and demand charges. Usage charges are determined based on the average amount of energy used over a time period, while demand charges are calculated based on energy use at one point in time. If your demand at one time is much higher than your typical energy usage, it will probably reflect in your bill.
Why Do You Need Our Services?
Many organizations can benefit significantly from understanding ever-changing market utility rates.
That’s where RateAcuity™ comes in. We make utility reporting easy for your employees with an up-to-date and accurate electric schedule database. RateAcuity offers delivery options such as a powerful application programming interface (API) and web portal.
These electric schedule databases help you forecast electric utility returns, integrate data into your software, analyze patterns and trends, access custom electric rate data reports, compare electric rate options and more.
Contact RateAcuity Today to Monitor Your Electricity Rates!
To help you more effectively manage changing electricity rates, RateAcuity offers a powerful electricity database. Spend less time researching rates and more time focusing on your business.
We offer unparalleled accuracy, supported by a staff of onshore energy rate experts. You can access these rates through an easy-to-use web portal or an application programming interface (API) within your own system. RateAcuity lets you compare rates, analyze trends and patterns and turn your rates into real-world value for your company.
Manage your demand charges more effectively with the right program. Reach out to us today or explore our API and web portal options to learn more!