Demand Charges: The Key to Reducing Your Organization’s Electricity Bill Without Reducing Consumption

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CFOs and COOs often struggle to fully understand the different energy saving approaches that are being pitched at them on a daily basis. One of the most mysterious is “demand charges“. Translating this bit of utility-speak is important because in some parts of the country, demand charges can account for up to 50% of your utility bill cost. The good news is that even 24/7 operations can take action to reduce this cost.

A quick review of the 3 factors that determine the size of your monthly electric bill, each of which can be managed down:

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  1. The dollar rate you are paying
  2. The total number of kilowatt hours (kWh) you use
  3. The “demand charge”

To help understand each of these three factors, here is my brilliant analogy that relates to driving:

  1. The rate you pay is like the price of gas
  2. The total kWh is the total number of miles you drive
  3. The demand charge is how fast you want to be able to drive (faster driving = bigger engine = more expensive car)

Returning to your electric bill, the demand charge is the measurement of the maximum amount of electricity “demanded” within any 15 (or 30) minute period during your monthly billing cycle. During that period, your utility meter was spinning at top speed. Your utility charges are based on that maximum speed measured in kilowatts (kW). Demand charges are usually determined monthly.

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So, two locations can pay the same rate ($/kWh) and use the same total amount of electricity (kWh), but have dramatically different utility bills due to demand charges (kW). Saving money through “managing your demand charges” presents a very real opportunity.

So how can your organization capture the savings potential of managing demand charges? Here are three basic first steps to identify your opportunities:

  1. Understand what locations face high demand charges by looking your highest bill for each location(generally in the summer)
  2. If possible, determine what time of day you are likely to trigger your maximum 30 minute window (interval meter data or sub-metering data can help with this)
  3. Consider what operational changes can be made to reduce the maximum

Changes often made to manage demand charges include: staggering the time at which you bring air conditioning units or other large equipment on line, turning off unnecessary equipment at times of highest use, or putting certain equipment to “sleep” when it’s not needed. If you are using the eMonitor system, very little effort is required to identify the date and time of highest use and the specific equipment that was on at that time–just use the Demand Report. From there, reducing your peak use and your electric bills can be managed through a bit of planning and using alerts to tell you when use is spiking. With a bit of forethought this winter, you can save money on electricity on an ongoing basis next year.