A demand charge bills your single highest 15-minute usage spike of the month, in dollars per kilowatt — not how much electricity you used, but how hard you hit the grid at your worst moment. On demand-billed schedules it’s routinely the largest line after energy itself.
One bad afternoon — every oven, compressor, and rooftop unit starting together — can set the charge for the whole month. Here’s how the math works and how to stop paying for peaks you don’t need.
Commercial meters record average power draw in 15-minute intervals — 96 readings a day. At the end of the billing month, the utility takes the highest single interval and multiplies it by the demand rate in the tariff. Draw 42 kW for one 15-minute stretch on a Tuesday afternoon, and at a $15/kW demand rate you owe $630 for that month — even if the building idled at 8 kW the rest of the time.
Energy charges and demand charges answer different questions. Energy (kWh) asks how much did you use in total? Demand (kW) asks how much did you need all at once? Two businesses with identical monthly kWh can pay very different bills if one runs flat around the clock and the other slams everything on at 7 AM.
| Energy charge | Demand charge | |
|---|---|---|
| Unit | ¢ per kWh | $ per kW |
| Measures | Total consumption over the month | Highest 15-minute average draw |
| You lower it by | Using less, or a cheaper supply rate | Flattening your peak |
| Changes when you switch supplier? | Yes — supply is shoppable | No — set by the utility tariff |
Every utility sets its own threshold in the commercial tariff. Real examples from the markets we cover: New Jersey’s EDCs commonly add demand billing above about 10 kW; Pepco in Washington DC keeps businesses on the non-demand GSND schedule until roughly 25 kW, then moves them to demand-billed GSLV; Texas TDUs bill demand on secondary service above 10 kW. Cross your utility’s line and the bill structure changes — often without anyone telling you why the total jumped.
Find your own threshold on our per-utility business pages — each one lists the commercial schedules and where demand billing begins for that territory.
Load factor is your average demand divided by your peak demand. A bakery that idles all night but fires every oven at 6 AM has a low load factor — its peak is far above its average, so demand charges dominate the bill. A cold-storage warehouse running compressors around the clock has a high load factor — its peak barely exceeds its average, so it pays comparatively little for demand.
High-load-factor businesses use infrastructure efficiently, and many tariffs reward them with better rate classes. If your load factor is low, that gap is your savings opportunity: every kW you shave off the peak comes straight off the demand line.
Motors, compressors, and HVAC draw their highest current at startup. Starting them in sequence — even 15 minutes apart — instead of all at once can keep the worst interval off your meter. This is free and usually the fastest win.
Pre-cool the building before the afternoon peak, run battery or vehicle charging overnight, schedule pumping and batch processes for hours when the rest of the building is quiet. The kWh is the same; the coincident peak isn’t.
Utilities will provide 15-minute interval data on request — some through the online portal, some by email. Plot a month and your peaks are obvious: a spike at the same time every weekday is a schedule problem you can fix, not a fact of life.
A demand charge is a fee commercial utilities bill in dollars per kilowatt (kW), based on the single highest average power draw a business records in any 15-minute interval during the billing month. Unlike energy charges, which bill total consumption in kWh, demand charges bill the peak rate of consumption — so one short spike of simultaneous equipment use sets the charge for the entire month.
Utilities size wires, transformers, and substations for the maximum load a customer might draw, not the average. A business that draws 100 kW for one hour needs the same delivery capacity as one that draws 100 kW all day. Demand charges recover that fixed infrastructure cost from the customers who cause it, which is why regulators approve them on commercial rate schedules in every state we cover.
Thresholds are set per utility tariff. In New Jersey, EDC small-business schedules commonly add demand billing above about 10 kW of peak demand. In Washington DC, Pepco moves businesses from the non-demand GSND schedule to the demand-billed GSLV schedule above roughly 25 kW. Texas TDUs bill demand on secondary service above 10 kW. Check your utility’s commercial tariff — our per-utility business pages list each threshold.
Reduce demand charges by flattening your peak, not by using less energy overall. The three moves that work: stagger equipment startup so motors, HVAC, and ovens don’t all hit at once; shift flexible loads (charging, pumping, pre-cooling) away from your peak window; and request 15-minute interval data from your utility to find the specific spikes you’re paying for. A single avoidable coincident peak can carry a three-figure monthly cost.
No. Demand charges on delivery are set by your regulated utility’s tariff and apply no matter which competitive supplier you choose. Switching suppliers changes the energy (supply) portion of the bill. Some supplier contracts also pass through capacity costs tied to your peak demand — ask whether a quote is all-in before signing.
Send us a recent bill. Our commercial team reads the tariff, checks the rate class, and pulls competitive supply quotes on your actual usage — free, typically within 48 hours.
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