Demand Charges Explained: The Biggest Lever on Your Commercial Power Bill
Two businesses can use identical kWh and pay very different bills. The difference is usually demand charges.
Your commercial power bill answers two different questions. Energy charges (kWh) ask how much you used in total. Demand charges (kW or kVA) ask how hard you hit the grid at your single worst moment.
How demand is measured
A demand meter records your usage in intervals — typically 15 minutes — and stores the highest average power draw of the billing period. Reach 50 kVA for one 15-minute window and that becomes your billed demand, even if you never touch it again that month.
The ratchet: a peak that follows you
Many distributors apply a ratchet, setting your billing demand at a percentage (often 85–90%) of your highest peak over the previous 12 months. A single spike in a hot or cold month can keep your delivery charges elevated for the rest of the year.
Load factor is the tell
Load factor is your average demand divided by your peak. A cold-storage warehouse running compressors 24/7 has a high load factor and pays comparatively little for demand. A plant that slams every motor on at 7 AM has a low load factor and pays dearly.
How to cut demand charges
- Stagger start-up of large equipment instead of energizing everything at once.
- Limit simultaneous use of high-wattage machinery.
- Model peak impacts before adding EV charging or new lines.
- Review power factor — poor power factor inflates kVA demand.
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