As a business owner, or soon to be a business owner, it is important to understand your energy bill. Depending on your rate classification, your bill may include a demand charge.
Learn about your business rates on our rates page.
What are demand charges, and how do they fit into your utility bill?
- You likely see—and pay for—two types of charges on your monthly utility bill.
- The first of these is your energy charge, which you can calculate by multiplying your total energy use for the month (measured in kilowatt hours, or kWh) by your energy rate.
- The other charge on your monthly bill is a bit more complicated. It’s known as a “demand charge” and is calculated by looking at the greatest amount of power you need (measured in kilowatts) during any of thousands of “demand intervals” that make up a billing cycle.
Why are demand charges applied?
Roseville Electric is responsible for making sure we can provide the maximum amount of electricity that you might need at any point in the day. For example, if you require 100 kW just once over the course of the month, we still need to be prepared to deliver that amount of power whenever you might need (or “demand”) it.
Maintaining enough capacity to satisfy all of our customers’ needs (for instance, an especially hot day when everyone’s using their air conditioning at the same time) we must keep all of our equipment on constant standby “just in case,” including substations, transformers and our power plant. We utilize business demand charges help to cover those costs.
How are commercial electricity demand charges calculated?
Demand charges are calculated based on your highest 15-minute average usage over a given month. If you consistently use energy at or close to that level over the month, those demand charges will generally make up a smaller portion of your bill.
However, if your business tends to use a lot of power over short periods of time (“spikes”), demand charges will make up a much larger percentage.
Essentially, you’ll be paying more as a result of your usage spikes.
Here are two examples with simple math:
Company A consistently requires 100 kW over the course of a 720-hour month. That means their energy usage is 72,000 kWh (100 kW x 720 hours). If we charged 10 cents per kWh, they’ll pay $7,200 in energy charges. There is also a demand charge of $8 per kilowatt per month. Because Company A’s maximum power requirement for any demand interval was 100 kW, they’ll also pay $800 in demand charges for the month ($8 x 100 kW). In this example, demand charges represent 10% of Company A’s total electricity bill of $8,000.
Company B uses less electricity during the entire month: just 10 kW per hour for 719 hours. However, they do use 100 kW for one hour every month to bring some large equipment on line (which requires a much heavier power load). That means their monthly energy usage is 719 kWh x 100 kWh = 7,290 kWh. At 10 cents per kWh, they pay $729 in energy charges for the month. But they’ll also pay $800 in demand charges, because their maximum power requirement was also 100 kW—even though this peak power need is only for an incredibly small portion of the month. In this example, demand charges represent over half (52%) of Company B’s total electric bill of $1,529.
Simple ways to reduce your demand charge.
The fastest, most inexpensive way to reduce your commercial electricity demand charges is to be mindful of your usage.
To help lower peak demand, consider:
- Installing energy-efficient equipment and finding other smart ways to reduce your energy usage in business.
- Downsizing your equipment to fit the job. Equipment that’s larger than it needs to be can unnecessarily increase demand.
- Rescheduling your company’s most energy-intensive activities from occurring at the same time, instead stagger the startup of equipment and activities. For example, if you turn on your HVAC and heavy machinery at the same time, the demand will be very high compared to if you staggered the startup you can balance your usage and reduce spikes in demand.