Understanding the Demand Charge

What is demand?
Demand is the total amount of electricity being used by a consumer during a defined time period. Demand varies from hour to hour, day to day and season to season. This capacity of electricity is expressed in kilowatts (not kilowatt-hours). Adams-Columbia Electric Cooperative records demand over a 15-minute interval. The member is charged for the highest 15-minute demand recorded on the meter. After ACEC reads the meter each month, the demand is reset to zero and the meter starts over, recording the highest 15-minute demand for the next billing period.

What is a demand charge?
Demand charges are based on each member’s maximum 15-minute demand on the cooperative’s distribution system each month. Demand is measured in kilowatts (kW). Members are billed according to kilowatts or kW of demand for their rate.

To demonstrate how the demand charge can affect an electric bill, here are two examples:

Example #1:
Running a 40 kW load for one hour would result in usage of 40 kilowatt hours (kWh) of energy and accrue a demand 40 kW
40 kW x 1 hour = 40 kWh
Demand = 40 kW

Bill for Example #1: 40 kW + 40 kWh
Facilities Charge $68.00
40 kW x $18.06 = $722.40
40 kWh x $.047 = $1.88
Total Bill $792.28

Example #2:
Running a 4 kW load for 10 hours would also result in usage of 40 kWh of energy but would only accrue a demand of 4 kW
4 kW x 10 hours = 40 kWh
Demand = 4 kW

Bill For Example #2: 4 kW + 40 kWh
Facilities Charge $ 68.00
4 kW x $18.06= $72.24
40 kWh x $.047 = $1.88
Total Bill $142.12

Both examples use the exact same amount of energy, 40 kWh. However, the resulting bill will be very different. Applying the ACEC Large Power Service rate demand charge of $14.62 per kW and an energy charge of 4.7 cents per kWh to both examples produces the above results.

Why are the bills so different?
The actual energy (kWh) used is the same. The difference between the bills is based entirely on the highest demand recorded during any given 15-minute period that month.

Why have a demand charge?
Demand charges are the way ACEC pays for generation capacity it needs to meet the demand of its members. ACEC pays its wholesale power supplier for energy and demand and bills the members accordingly.

Who incurs a demand charge?
All members that exceed 40 kW for two or more of the past twelve months are billed for demand.

Are demand charges unique to ACEC?
No. Demand billing is used consistently throughout the electric utility industry.

How can demand charges be reduced?
To reduce demand charges, simply examine your operation. 

  • What energy-efficient improvements can be made?
  • Does all of the equipment need to be running at the same time? If not, what can be turned off while other equipment is running?
  • Often there is equipment that is operated infrequently. If this is the case, can some other equipment be turned off while this equipment is running? The result may be a significant savings in your monthly demand charge.

It is helpful to know when your meter is read by ACEC. For example, you will want to test your irrigation system in the spring, instead of waiting until you need it on a hot day in July, only to discover that it’s not running properly. You know that your meter is read on the 1st of each month. If you haven’t used the system during any part of the month, you may want to wait until after the meter is read for the month to test the system. Even for a short test, you will be billed for the energy used by the irrigation system, plus a demand charge for the entire month. By waiting a few days, you could move that demand charge into a month when you’ll be using the irrigation system anyway, saving an extra month’s demand charges.