What Is Demand?

Every electricity consumer's service bill contains both consumption and demand charges, which can be compared to the overhead costs of doing business. Residential customers pay one rate of charges for electricity service, covering both consumption of electricity and demand. This simple, combined charge is possible because there is relatively little variation in electricity use from home to home. This is not the case among commercial and industrial energy users, whose electricity use—both consumption and demand—varies greatly. Some need large amounts of electricity once in a while; others, almost constantly. Complicating this is the fact that electricity cannot be stored. It must be generated and supplied to each customer as it is called for— instantly, day or night, in extremely variable quantities. Meeting these customers' needs requires keeping a vast array of expensive equipment—transformers, wires, substations and even generating stations—on constant standby. The amount and size of this equipment must be large enough to meet peak consumption periods (i.e., when the need for electricity is highest).

Although virtually all electricity consumption is metered, peak electricity demand is only metered where it is economical to do so. In general, peak demand meters are only installed for larger consumers of electricity. All commercial electric customers have different requirements for how much power they use and how (and when) they use it. It is very easy to measure the quantity of energy consumed over a period of time and bill for it accordingly. It is the "how and when" part that poses the big problem, since electric utilities have to design and build their systems to be capable of supplying as much power as their customers need, precisely when they need it. The utility must always have enough capacity on line to be able to give every customer as much power as "demanded" at any point in time. Newspapers roll big presses while most of us are asleep. Some factories and grocery stores operate day and night. Most churches demand the majority of their electricity on Saturdays and Sundays. Some customers demand small quantities for many hours and others require high power levels for short durations.

Demand charges are how utilities share the costs of being ready and able to deliver enough electricity, whenever it's required, among all commercial customers. Meters are designed to sample individual customer power draw (or load) at continuous 15 minute intervals and to identify the highest "demand" level reached during the entire billing month. This is the demand that will be billed since it reflects the level of power that had to be ready to supply when the customer needed it. In this way, all commercial customers with a peak demand of over 20 kilowatts (20,000 watts) pay their fair share of the overhead for always having sufficient power capacity available. The power transformer that serves each customer must be sized for their peak demand, even if it only needs to operate at that level for short periods of time. Demand meters are always reset to zero kW after monthly readings are obtained, so one month's demand will not influence the next. Customers should also be aware that the kilowatt-hour (consumption) charge associated with demand rate structure is about 34% lower than the kWh charge of non-demand (retail) rate structure. In cases where demand is relatively low but consumption is high, the demand (wholesale) rate is much more economical. A base operating demand level is unavoidable, but energy users can minimize short term peaks by phasing equipment and lighting start times at greater than 15 minute intervals in a pro-active energy management program such as microMETER.

Comparing Demand and Consumption:

On every demand-billed customer’s energy service bill, charges for consumption and demand are separate. This exaggerated example illustrates how the two work: Suppose you have a commercial building with lighting, cooling, machinery, and miscellaneous electric equipment. Its fully installed load totals 15 kW. You are not using the building and have no employees. On the first day of each month, you come into the building and turn on all electrical equipment and leave it on for 15 minutes. Then you shut everything off again and lock up the building until the following month. What would your electric bill look like? It would show very little consumption; in fact, only 4 kWh, at a cost of about 28 cents. This is added to a basic customer service charge of about $50 per month, which includes maintenance of electric lines, metering and other costs such as meter reading and billing. But what about the demand charge? At an average cost of $8.32 per kW and the meter reading at 15 kW (8.32 x 15), the demand charge would be $124.80. Also see "Crest Factor".