For many commercial accounts, demand charges are among the largest and least understood parts of the bill. Because they're based on peak usage rather than total consumption, they behave differently from the energy charge — and offer real opportunities to save.
What a demand charge is
A demand charge bills you for your highest sustained rate of electricity use (in kilowatts) during the billing period. It reflects the capacity that the grid and utility infrastructure must be able to deliver to you at any moment — even if you only hit that level briefly.
How demand is measured
Utilities record demand in short intervals, commonly 15 minutes. Your billed demand is usually the highest single interval in the period. Some tariffs use a 'ratchet,' where a high peak can influence charges for months afterward.
A demand ratchet means one bad peak can echo across future bills — making peak management especially valuable.
What drives your peak
Peaks are often caused by many loads running simultaneously — for example, starting multiple pieces of large equipment at the same time, or HVAC ramping up on a hot afternoon while production is at full tilt.
How to manage demand charges
- Stagger equipment startup so large loads don't spike at once.
- Shift flexible loads to off-peak times.
- Use controls/automation to cap simultaneous demand.
- Deploy on-site battery storage to shave peaks.
- Review interval data to identify and target your worst peaks.
Common mistakes
- Assuming a lower commodity rate will offset high demand charges — it often won't.
- Ignoring interval data that pinpoints peak events.
- Overlooking demand ratchets in the tariff.
