Don't get shocked by demand charges: What they are and how to avoid them

Many commercial and industrial businesses look at their monthly electric bills and wonder why they seem to be rising so much. The cause might not be what you think—it could be something called demand charges, which can have as big of an impact on your electricity bill as the amount you’re charged per kilowatt-hour (kWh). This article explains exactly what demand charges are and how they affect your business’s electricity bill.

Don't get shocked by demand charges

Understanding what a demand charge is

A demand charge is a fee that some energy providers charge you for the electricity you use, not just the electricity you buy. Demand charges don't depend on how much electricity you use. They're calculated based on your peak demand during the billing cycle, which is usually when your air conditioner or furnace kicks in for the first time each day. Peak demand typically occurs between 2 p.m. and 6 p.m., when households start turning on their cooling systems, but it can also happen in the early morning as people wake up and turn on their lights, coffee machines, microwaves or televisions all at once.

What causes an increase in demand

The causes of an increase in demand can be anything from a hot summer day when everyone is running their air conditioners, to a sudden spike in the cost of natural gas. Demand charges cover the cost of power consumed during periods where your demand for power exceeds the supply. That means that if you have a high demand for power but don’t use much electricity, then you won’t see any change in your electric bill because you haven’t exceeded the amount of electricity on hand.

Dealing with the problem

If you've never heard of a demand charge, the term might sound like a form of electric shock therapy. In reality, it's just a way for electric utilities to recoup some of the money lost when customers use power during peak hours. There is no one-size-fits-all solution when it comes to avoiding these charges, but there are some steps you can take if your utility offers this type of billing arrangement. 

1) Consult with your energy provider about whether or not you're eligible for any exemptions or lower rates that can help mitigate your demand charge. If there's nothing available on the table right now, then try negotiating with your provider.

Conclusion

For many of us, our utility bills are mostly static charges. The price of water, electricity, and natural gas doesn't change much from month to month. However, a growing number of customers in some areas are being charged for their usage in minute-by-minute increments. This is known as demand charges and can significantly increase the cost of your bill. Demand charges apply differently depending on where you live and the provider you use, but they are a growing part of the world of utilities. It is important to understand this charge if it applies to your bills so that you do not get shocked by the new charges when they come due each month.