Energy Charges vs Demand Charges
Energy charges ($/kWh) measure total electricity consumed — like paying by the gallon for water. Demand charges ($/kW or $/kVA) measure peak usage rate — like paying for pipe size. A facility that uses moderate energy but has high peak demand pays heavily for demand charges.
Example: 100,000 kWh/month at $0.08/kWh = $8,000 energy. 400 kW peak demand at $15/kW = $6,000 demand. Total: $14,000. Demand is 43% of the bill despite being a single 15-minute peak.
Understanding Demand
Demand is the highest average power (kW or kVA) drawn during any 15-minute interval in the billing period. The utility meter continuously records 15-minute averages and the highest one becomes the billing demand.
Ratchet clause: Many utilities bill demand as the greater of: (a) current month's peak demand, or (b) a percentage (often 80%) of the highest demand in the previous 11 months. One spike in July can inflate demand charges through the following May.
Time-of-use (TOU): Many utilities have peak/off-peak rates. Peak rates (2-6 PM weekdays) can be 2-3× off-peak rates. Shifting loads to off-peak hours can significantly reduce costs.
Power Factor Charges
Utilities penalize low power factor because it forces them to provide more current (and larger infrastructure) for the same useful power. Common penalty structures: billing demand adjusted by PF multiplier (kW_billed = kW_actual × 0.90 / PF_actual), reactive power charges ($/kVAR), or minimum PF requirements with surcharges.
Example: 500 kW actual demand at 0.75 PF with 0.90 PF billing: kW_billed = 500 × 0.90 / 0.75 = 600 kW. Extra 100 kW × $15/kW = $1,500/month penalty. Installing $15,000 in capacitors pays for itself in 10 months.
How to Reduce Your Bill
Load management: Stagger motor starts, HVAC staging, and process equipment to avoid simultaneous peak demand. A building management system (BMS) with demand limiting can reduce peak demand by 15-25%.
Power factor correction: Install capacitor banks to bring PF above 0.90. Automatic banks that adjust in real-time are most effective for variable loads.
Peak shaving: Use battery storage or generators to supply load during peak demand periods, reducing the demand the utility must serve. Emerging technology — battery prices continue to drop.
Energy efficiency: LED lighting, high-efficiency motors, VFDs on variable-load pumps/fans. VFDs alone can reduce fan/pump energy by 30-50% for variable-flow systems.
Common Bill Errors
Wrong rate schedule: Utilities sometimes assign customers to the wrong commercial rate. Review your rate schedule code and compare with available options — a rate schedule change can save 10-20%.
Estimated reads: If the meter wasn't physically read, the bill is estimated. Accumulated estimation errors can be significant.
Incorrect demand metering: CT ratio errors, metering on the wrong circuit, or malfunctioning demand registers can all inflate bills. Request a meter test if demand charges seem unexpectedly high.
Sales tax on exempt items: Some states exempt manufacturing electricity from sales tax. Verify you have the proper exemption certificates on file with the utility.