What is Demand?
Understanding the way your business is billed for electrical energy may seem confusing. That’s because, unlike most other products, electricity cannot, in a practical sense, be stored. Rather, it needs to be generated and supplied as your equipment calls for it. Day or night, Danville Utilities must instantly be able to meet your business’ maximum requirement for electricity.
Your business’ requirement for electricity is referred to in the utility industry as your electric “demand.” The equipment Danville Utilities must own and maintain in order to meet all customers’ demand is extremely expensive. In addition, this equipment – transformers, wires, substations, and even generating stations – must be varied and large enough to meet peak energy usage periods, i.e., when the need for electricity is highest, at all times.
What’s a Demand Charge? Danville Utilities commercial and industrial customers are placed on different rate schedules, or put more simply, are charged slightly differently, depending on how they use electricity. Along with a basic Customer Charge – which is a set fee for service, paid monthly – all customers pay for the energy they use (called the “consumption” charge, electric usage is measured in kilowatt-hours, abbreviated kWh). Larger users of electricity are also billed for their monthly electric demand (called the “demand” charge, electric demand is measured in kilowatts, abbreviated kW).
Although it’s often thought that most residential customers are not assessed demand charges, the rate that residential customers pay is actually a combination of consumption and demand charges. This one charge is more economical to implement and is possible because there is relatively little variation in electricity use from home to home.
This is not the case among commercial and industrial energy users, whose electricity use –both consumption and demand – vary greatly. Some need large amounts of electricity once in a while – others need a great amount of power almost constantly.
Utilities around the country have determined that the most equitable way to cover the cost of the equipment is to have those customers who create this demand, and the need for power during these peak times, pay for its availability. For this reason, utilities spread the costs of this extra equipment among all commercial and industrial customers as a separate charge for demand.