A demand charge is a fee based on the highest rate of electricity consumption recorded in a billing period — usually your peak 15-minute interval. It's separate from consumption (kWh) and can represent 30–50% of a commercial electricity bill.
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How Demand Charges Are Calculated
Utilities measure your electricity demand in kilowatts (kW) — the rate of consumption at any given moment, not the total. Your demand charge is based on the single highest 15-minute average demand recorded in the billing month, multiplied by the utility's demand rate ($/kW/month). A 100 kW peak for even one 15-minute period in a month generates a full month of demand charges.
Why Demand Charges Exist
Utilities build and maintain infrastructure to handle peak demand. If your peak demand is 200 kW, the utility has to have capacity available to serve that 200 kW at any moment — even if you only reach that level for 15 minutes a month. Demand charges recover the fixed cost of that capacity.
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Demand Charges and Your Supply Contract
Supply rates from retail electricity suppliers affect your commodity cost (cents per kWh). Demand charges are typically separate — set by your utility's tariff — and don't change based on your supplier. However, some supplier contracts include demand charge components or demand response provisions that interact with your utility tariff.
Demand Charge Reduction Strategies
Peak shaving: identifying what drives your peak and reducing or shifting it. Load leveling: distributing large loads across time rather than running them simultaneously. Battery storage: charging during off-peak, discharging during peak events. Demand response programs: agreeing to reduce load during grid emergencies in exchange for incentives.
Demand Charges by Industry
Manufacturing and industrial accounts face the highest demand exposure. HVAC-dominated accounts (retail, office) have predictable seasonal peaks. Restaurants have consistent lunch/dinner peaks. Healthcare facilities have relatively flat demand profiles. Understanding your demand profile is step one in managing it.
Frequently Asked Questions
What states have deregulated commercial electricity?
The main deregulated commercial electricity states are Texas, Pennsylvania, Ohio, Illinois, New York, New Jersey, Massachusetts, Connecticut, Maryland, Michigan, Delaware, New Hampshire, Maine, Rhode Island, and several others with partial deregulation.
What does a commercial energy broker charge?
Nothing out of pocket. Broker compensation is built into supplier pricing and present in every offer regardless of whether a broker is involved. You get a competitive process at no additional cost.
How long does it take to switch electricity suppliers?
Supplier switches typically take one billing cycle — about 30 days. There's no service interruption. Your utility continues delivering power through the transition.
What's the difference between kW and kWh?
kWh (kilowatt-hours) measures consumption — the total electricity used over a period. kW (kilowatts) measures demand — the rate of consumption at a specific moment. Demand charges are based on peak kW; supply charges are based on total kWh.
When should I start looking for a new electricity supplier?
Start 6–9 months before your current contract expires. That window gives suppliers time to bid competitively and gives you time to make a considered decision without urgency.