Demand-Heavy and Energy-Heavy Tariffs — Which Fits Your Load

Two schedules in the same tariff book can collect broadly similar revenue across a utility's customer base and produce very different bills for any individual customer. The difference is how much of the cost sits in the demand charge and how much in the energy charge.

Why load factor decides it

A demand charge is a fixed monthly amount per kilowatt of peak. The more kilowatt-hours you spread that amount across, the less it costs per unit consumed.

A site running continuously at close to its peak spreads the demand charge very thinly. A site that touches its peak briefly and idles the rest of the month spreads the same charge across far fewer kilowatt-hours, so it lands heavily on each one.

That is the whole mechanism, and load factor measures it directly: energy divided by peak demand times hours in the period.

The crossover

For any two schedules there is a load factor at which they cost the same. Above it, one is cheaper; below it, the other.

That calculation takes five minutes and settles an argument that otherwise runs on intuition. It also explains why comparing headline energy rates produces the wrong answer so reliably: the cheaper energy rate belongs, by construction, to the schedule that recovers more through demand.

The crossover figure is worth writing down and keeping, because it converts an annual analysis into a monthly check. Once you know the number, tracking your own load factor month by month tells you immediately whether you are on the right side of it and whether the gap is widening. A site that computed a crossover of 72 percent and has drifted from 68 to 55 over two years has a live question, and it will notice it long before the next formal review would have.

It is also the right number to hand to whoever is proposing an operational change. A shift pattern that improves load factor moves you toward one schedule; a new line that runs only two days a week moves you toward the other. Those consequences are invisible in a production plan and obvious against a crossover figure.

What it means for demand work

There is an appealing symmetry here that is worth stating, because it is frequently misunderstood.

Being on a demand-heavy schedule is not a reason to avoid demand reduction. It is the opposite. On a demand-heavy schedule each avoided kilowatt is worth more, so the same physical reduction produces a larger saving and the payback on any measure is shorter.

The two decisions interact rather than substituting for each other:

• Low load factor, no flexibility. Move to an energy-heavy schedule if you qualify. There is nothing to optimize operationally.
• Low load factor, real flexibility. Reduce the peak first. Improving load factor may move you across the crossover, at which point a demand-heavy schedule becomes the cheaper one and the reduction is worth more under it. See how to reduce peak demand charges.
• High load factor. A demand-heavy schedule already suits you. Demand work will have limited scope because there is little shape to remove; energy efficiency is the larger lever.

The middle case is the one that rewards planning. Doing the reduction and the switch in the right order captures both benefits; doing them in the wrong order, inside a minimum stay period, can capture neither: switching rate schedules.

What the simple calculation leaves out

The crossover above uses base rates only. A complete comparison has to add:

• Demand-based riders, which effectively raise the demand rate on both schedules and can move the crossover substantially: riders and surcharges.
• The ratchet, which raises the effective cost of a spiky load on whichever schedule carries one, and is frequently the single largest structural difference: ratchet clauses.
• Seasonal and time-of-use variation, where a single blended rate does not represent either schedule fairly.
• Power factor treatment, which can differ between schedules independently of everything above.

So the crossover is a screening tool, not the decision. It tells you which direction to look and whether the question is worth an afternoon. The decision comes from modeling your own intervals through the full rule set of each candidate: how to choose a rate schedule.