A demand charge is a fee on commercial electricity bills based on your peak power usage during any 15-minute interval in a billing period. Unlike energy charges (kWh) that measure total consumption, demand charges measure the maximum rate of power (kW) your business draws at any single moment. This reflects the grid capacity utilities must maintain to meet your peak needs.
Definition verified February 2026 from Reliant Energy and TXU Energy
Think of your electricity like driving a car:
Like your odometer — measures total distance traveled (total electricity used over time)
Like your speedometer — measures your fastest speed (peak power draw at any moment)
Two businesses can use the same total kWh monthly but have very different demand charges. A restaurant that fires up all equipment at 5 PM has a higher demand spike than an office that spreads usage evenly throughout the day.
Example: If your peak demand is 50 kW and the demand rate is $10/kW, your demand charge is $500 for that month — regardless of total kWh consumed.
Utilities must build and maintain infrastructure capable of delivering your maximum power needs — even if you only hit that peak for 15 minutes a month. Demand charges help recover these costs:
Demand charges incentivize businesses to spread their usage over time rather than creating sudden spikes that strain the grid.
In the ERCOT market (most of Texas), larger commercial customers face an additional demand-related charge based on the Four Coincident Peaks (4CP):
Note: 4CP primarily affects larger commercial/industrial customers with interval meters. Small businesses may see simplified demand charges from their TDU.
| Customer Type | Demand Charges? |
|---|---|
| Residential | Typically no (built into per-kWh rate) |
| Small Business | Often yes, especially above 10-20 kW peak |
| Commercial/Industrial | Yes — can be 20-50% of total bill |
Instead of turning on all HVAC units, ovens, or machinery at once, start them sequentially over 15-30 minutes to avoid a demand spike.
Run energy-intensive equipment (ice machines, water heaters, EV charging) during off-peak hours when other equipment is idle.
Install monitoring that alerts you when demand approaches your peak threshold, allowing real-time adjustments.
Commercial battery systems can "shave" peak demand by discharging stored energy during high-usage periods.
A demand charge is a fee based on your peak electricity usage during any 15-minute interval in a billing period. It measures the maximum power (kW) your business draws at any moment, not total energy consumed (kWh). Think of it as measuring how fast you're using electricity, not how much total.
Utilities charge demand fees because they must maintain enough grid capacity to meet your peak power needs. Even if you only use maximum power for 15 minutes, the utility must have infrastructure ready to deliver that capacity. Demand charges help recover these infrastructure costs.
In Texas, residential customers typically do not pay separate demand charges. Demand charges primarily apply to commercial and industrial customers. However, residential customers indirectly pay for grid capacity through their per-kWh delivery charges.
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