Demand charges
What Is a Demand Charge? Demand Charges Explained
A demand charge bills the highest 15-minute kW your site drew in the month, priced per kW. What it measures, how it is calculated, and why utilities charge it.
Subject area
Peak Demand and Demand Charges
Peak demand is the highest rate of consumption your facility reached during the billing period, usually averaged over a fifteen-minute interval, and a demand charge bills you for it in dollars per kilowatt rather than cents per kilowatt-hour. Two plants can consume identical annual energy and receive bills that differ substantially, entirely because of when that energy arrived. This section covers what the charge is measuring and why utilities levy it, how the demand interval is defined, the difference between facility, on-peak and coincident demand, what a ratchet clause does to a single bad afternoon, and how to locate the demand component inside your own statement. The arithmetic is not difficult. The definitions are where the money is.
What is peak demand?
Peak demand is the highest rate at which a facility draws electricity during a billing period, measured in kilowatts. The utility does not use an instantaneous reading: the meter averages load over fixed intervals, most commonly fifteen minutes, and the highest of those averages in the month is the peak demand.
It is a rate, not a quantity. A site can use little energy in a month and still record a high peak, if enough equipment ran at the same time for one quarter of an hour. The difference between the two units is the foundation of everything in this section: kW vs kWh.
How peak demand becomes a demand charge
The utility multiplies a demand figure by a price in dollars per kilowatt per month. That figure is not always the peak itself. Depending on the tariff it can be the peak inside an on-peak window, a floor set by an earlier month, or the load you happened to be drawing when the whole grid peaked. What is a demand charge? walks through the calculation with numbers, and the demand interval explains why fifteen minutes is the unit that decides it.
The kinds of demand charge
A commercial bill can carry more than one of these at once, on separate lines and at separate prices.
| Charge | What sets it | Read |
|---|---|---|
| Facility demand | Your highest interval in the month, at any hour | Facility, on-peak and billing demand |
| On-peak demand | Your highest interval inside a defined time window | Facility, on-peak and billing demand |
| Coincident peak | Your load when the utility or regional system peaked | Coincident vs. non-coincident |
| Ratchet | A percentage of the highest peak in earlier months | Ratchet clauses |
| ERCOT 4CP | Your load in four summer system peaks, applied for a year | 4CP explained |
| PJM capacity tag | Your load during a handful of summer peak hours | PJM capacity tags |
| kVA demand | Apparent power instead of real power | kVA and kW billing |
Why utilities bill for it
The wires, transformers and generation capacity that serve a site are sized for its peak, and they cost the same whether that peak lasts a season or a quarter of an hour. A demand charge is the tariff's way of billing that capacity to the customer whose load made it necessary. The argument, and the places where it is contested in rate cases, is in why utilities bill for demand at all.
Start here
The piece that carries the subject. Read this one first.
Supporting analysis
Everything underneath the pillar, in this subject area.
Demand charges
4CP Explained — How ERCOT's Four Coincident Peak Sets Transmission Costs
4CP is ERCOT's four coincident peak method: four summer intervals set a Texas facility's transmission charge for the following year. How it works and how to manage it.
Demand charges
Coincident vs. Non-Coincident Peak Demand
Non-coincident peak demand is your own highest interval; coincident peak demand is your load when the grid peaked. How each is billed, and why each needs a different fix.
Demand charges
EV Fleet Charging and the Demand Charge
The energy to charge a fleet is predictable. The demand charge it creates depends almost entirely on when the vans plug in and whether anything limits how fast they all draw at once.
Demand charges
Facility Demand, On-Peak Demand and Billing Demand
Three terms that sound interchangeable and are not. A tariff can bill two of them at once, which is how a successful load shift produces half the expected saving.
Demand charges
PJM Capacity Tags and How Yours Is Set
Demand charges
The Demand Interval — Why Fifteen Minutes Decides Your Bill
The meter averages your load over a fixed interval and bills the highest average. Interval length, alignment and rolling versus fixed windows all change the number.
Demand charges
Why Utilities Bill for Demand at All
The cost causation argument behind demand charges, what it explains well, and the places where it is contested in rate cases. Worth understanding before you argue about it.