Most commercial electric bills are calculated differently than your home’s electric bills. The demand based billing structures used for most businesses includes a mechanism for the utility to distribute their fixed generation and distribution costs fairly among its customers, based on each customer’s maximum monthly electrical requirements. To intelligently manage building electrical costs, it is essential that building owners understand the impact that these demand charges can have on electrical costs.

To understand the difference, think of your electrical use as water flowing through a hose into a bucket.

Residential customers and any small commercial rate code 10 customers, pay a monthly base charge (essentially a rental charge for the hose and bucket) and an energy charge for the electricity used since the last time the meter was read (the amount of water in the bucket). You can fill the bucket in a few seconds or a drop at a time. Your electric bill will be the same.

Rate code 11 customers are charged for both the electricity used (the water in the bucket) and the maximum demand occurring in any fifteen minute period during the month (the maximum amount of water that flowed through the hose at any one time). How fast you filled the bucket (your peak electrical demand) can make a big difference in the size of your bill

Non digital demand meters include a red and black needle. The red needle measures how much power is being used at the particular point in time you look at it. The black needle measures the highest rate of usage since the meter was last reset and amount of demand you will be charged for on your next electricity bill.

Let’s look at two monthly bills to see the impact demand billing can have on electric costs. One site had peak demand of 30kW while the other’s peak was 10kW. Both used 4000kWh during the month.

Even though both sites used the same amount of electricity (4000kWh) Site B paid $267.95 less (13% taxes included) because of the lower peak demand. Obviously it is important to keep peak monthly demands as low as possible.

HHere are a few tips on how to reduce demand charges and lower your average cost of electricity:

1) Examine bills carefully – Calculate your average power cost. If they are more than $0.13/kWh (including taxes) there is likely room for improvement. All rate code 11 electrical services should be read and billed monthly. If you are billed bimonthly, both months bills will be based on the peak demand registered at any time during the two month period, even if actual peak demand in one month was substantially lower than the other.

2) Improve Efficiency – Replacing equipment that is in use during peak periods with a more efficient device will save both demand and kWh charges. Replacing a 60W incandescent bulb in a hall with a 13W compact fluorescent, for example, reduces peak demand by 43 watts for each light that operates on peak.

3) Equipment Scheduling and Load Shedding – If large electric resistance loads, such as space or water heaters, are allowed to cycle on and off on a random basis, at some point nearly everything may be operating at the same time and an unusually high peak demand could be set for that month. Peak demand can be reduced with automatic load shedding equipment which prevents less essential equipment, such as water heaters or hallway heaters, from operating during short term peaks. Each building must be studied individually to determine if load shedding devices are a realistic option.

4) Power Outages - Turning off non-essential equipment during power outages will ensure that when the power returns not all your equipment will come on at the same time creating an unusual spike in demand.

5) Fuel Substitution – A fool proof way to avoid demand charges for heaters is to replace electric heaters with heaters that use another fuel. Central water heating systems are often a good candidate for this approach.

UPDATED: 5 Jan 2009