For a full explanation of electric demand and of Danville Utilities' demand charge, please see our
Understanding Demand brochure
Consumption vs. Demand
The distinction between demand (kW) billing and consumption (kWh) billing can be best illustrated with an example. This example also shows the difference in unit electric costs between an efficient and inefficient user of electricity.
Suppose you operate a building with lighting, cooling, and miscellaneous electric equipment. The maximum installed load totals 100 kilowatts (kW). Assume that the demand rate is $ 8.75 per kW and the consumption rate is $0.0716 per kWh (our current totals on
Rate Schedule 50 - Medium General Electric Service
You are not using the building and have no employees. However, one day each month you turn on all electrical equipment — all 100 kW — for 15 minutes. Afterwards, you shut everything off and leave until the following month.
What will your monthly electric bill reflect? It would note very little energy use, only about 25 kWh, (100 kW multiplied by .25 hours), and would cost about $1.79 (25 kWh multiplied by $0.0716 per kWh). However, your demand charges would be for 100 kW and would cost $875.00 (100 kW multiplied by $8.75 per kW) – resulting in a monthly bill of $876.79. Of course, this is an extreme example of an inefficient user of electricity. It does, however, show the significant difference between energy use in kWh and demand in kW.
Let’s consider another example wherein the same building operates on a standard 40-hour week. The monthly energy use increases to roughly 16,000 kWh (100 kW multiplied by 160 hours per month), which would cost $1,145.60. However, your demand would remain at 100 kW and the cost at $875. The total monthly bill would be $2,020.60, with demand costs being no different.
As an incentive to control demand costs, it’s important to understand that your meter only records simultaneous demand for the peak 15-minute period in the month. That means you can control your demand costs by staggering the use of different equipment.
Simply put, if you were to simultaneously operate a machine that requires 50 kW of power along with a machine that requires 75 kW, the two machines would be responsible for 125 kW on the demand meter.
However, if you were to alternately operate these machines, the maximum demand reading from the two machines would only be 75 kW, because the 50 kW machine only operates when the 75 kW unit is off and, as previously explained, the meter only stores the highest, or “peak,” demand. With interlocks and controlling devices, it’s easy to operate some equipment this way. Remember, each kW saved is worth up to $11.50 per month (depending on your
). In the case of the two machines mentioned above, the demand savings could be up to $575 per month.
There are many ways to manage demand, ranging from manual controls and time clocks to sophisticated automatic units that program and control buildings and processes for very large commercial/industrial loads.
Demand “Ratchet” Clause
In some cases, there may be a difference between the recorded demand taken from the meter and the demand charges billed. This is due to a billing feature known as the “demand ratchet.”
Common in the electric industry, a demand ratchet is a means of applying a minimum billing amount to a customer who may have inconsistent or seasonal energy requirements. To explain further, a certain customer may have significant energy requirements for only six months of the year, but the utility still must maintain equipment year-round to make that energy available whenever the customer needs it. In order to bill this customer fairly, a demand ratchet must be applied. This insures that the utility is properly compensated for the year-round expenses it incurs to serve this customer.
Using the demand ratchet concept, Danville Utilities has created a minimum monthly demand charge, stating that for billing purposes the demand charge will be the greater of the following:
25 kW (for Medium General Service – Rate Schedules 50,55,56) and 500 kW (for Large General Service – Rate Schedules 60,65,66); or
The current month’s measured demand; or
40% of the highest measured demand established during the past eleven months, including demand adjustments for power factor.
If you have any questions regarding the electric demand at your business, please do not hesitate to contact our Key Accounts Manager, Nate Lewis at