Find the tariff’s measurement rule
A utility may measure the highest average load over a defined interval and apply separate on-peak or non-coincident charges. The billed quantity can also differ from measured peak because of minimums, power-factor treatment, contracted demand, or historical look-back provisions. Obtain the actual tariff and meter interval settings. Do not assume all businesses use a 15-minute window or that a momentary equipment spike is identical to billed demand. The averaging rule determines how operations affect the quantity.
Understand the ratchet before estimating savings
A ratchet can preserve a percentage of an earlier peak as a billing floor for later months. This can make one unusually high interval financially relevant beyond the original month. A project that lowers today’s measured demand may consequently take time to reduce billed demand. Record the look-back period, percentage, seasonal rules, and effective dates. A savings estimate based solely on this month’s maximum can overstate benefits if the historical floor still controls.
Target coincident equipment use safely
Interval data can reveal overlap among HVAC startup, process equipment, charging, cooking, or refrigeration cycles. Staggering suitable loads or using controls may lower the applicable peak, but operating requirements and safety take priority. A battery needs dispatch, efficiency, degradation, and tariff modeling rather than a simple capacity multiple. Coordination is also needed with demand-response commitments. Measure the resulting billing determinant after changes and account for any rebound that creates a new peak in another interval.
Hypothetical ratchet example
Suppose an illustrative demand tariff uses the greater of current monthly peak or 80% of the prior 11-month maximum. A past 200 kW peak establishes a 160 kW floor. If current demand falls to 140 kW, billed demand remains 160 kW under those simplified assumptions. At $12/kW-month, the modeled charge is $1,920 rather than $1,680. Real tariffs vary; verify the actual formula and schedule before using this example to justify equipment or control spending.
Practical review checklist
- Obtain demand units, averaging interval, time windows, minimums, and tariffed look-back rules.
- Compare measured peak with billed demand and identify which provision sets the difference.
- Use interval data to find controllable overlaps while protecting service, safety, and production.
- Model ratchet persistence, rebounds, and measurement verification before promising annual savings.
Questions & answers
Are kW and kWh interchangeable?
No. kW measures power; kWh measures energy over time. Demand charges and consumption charges use different quantities.
Will cutting usage by 10% cut demand charges by 10%?
Not necessarily. Timing, billed-peak rules, ratchets, and minimums determine the demand result.
Sources & scope
Primary references reviewed October 15, 2026. These sources support the stated concepts; actual tariffs, program rules and signed agreements govern the account. Decision examples and operational worksheets are original educational analysis.
- DOE FEMP: Evaluating your utility rate options
Demand, ratchets, time-of-use rates, coincident peaks, and standby charges. - EIA: Delivery of electricity to consumers
Physical grid, transmission, distribution, and provider roles. - EIA: Electricity prices and factors affecting prices
Fuel, weather, generation, grid costs, and retail rate differences.