Understanding the way you are billed for electrical energy may seem confusing. That's because, unlike some other products, electrical energy cannot, in a practical sense, be stored. Rather, it needs to be generated and supplied as your equipment calls for it. Day or night, we must instantly be able to meet your requirement for electricity. Your demand for electricity, and the flexibility needed to supply this electricity during peak times leads to "demand charges."
The distinction between demand kilowatt (Kw) metering and energy kilowatt hour (KwH) metering can best be illustrated with an example. This example also shows the difference in unit electric costs between efficient and inefficient use of electricity.
Suppose you operate a building with lighting, cooling, and miscellaneous electric equipment. The maximum installed load totals 120 Kw. Assume that the demand rate is $15.00 (summer) / $12.50 (winter) per Kw, and the energy rate is $0.065 (summer) / $0.06 (winter) per KwH. You are not using the building and have no employees. However, on the first day of each month you turn on all electrical equipment - all 120 Kw - for 15 minutes. Afterwards, you shut everything off and leave until the following month.
What will your electric bill reflect? It would note very little energy use, only 30 KwH, (120 Kw multiplied by .25 hours), and would cost about $1.95 (summer)/$1.95 (winter) (30 KwH multiplied by $0.065 (summer)/$0.06 (winter) per KwH). However, your demand charges are for 120 Kw and would cost $1,800.00 (summer)/$1,500.00 (winter) (120 Kw multiplied by $15.00 (summer)/$12.50 (winter) per Kw) - resulting in a monthly bill of $1,801.95 (summer)/$1,501.95 (winter). Of course, this is an extreme example of an inefficient user of electricity. It does, however, show the significant difference between energy use in KwH and demand use in Kw.
Let's consider another example wherein the same building operates on a standard 40-hour week. The monthly energy use increases to 19,200 KwH (120 Kw multiplied by 160 hours per month). However, demand would remain at 120 Kw. The total monthly bill would be $3,048.00 (summer)/$2,652 (winter).
Demand is measured over a 15 minute period. If a building is using 120 Kw for a 15 minute interval, the recorded demand would be 120 Kw. If the building was using 120 Kw for the first 10 minutes of an interval, and then completely shut down for the next five minutes of the interval, the recorded demand would be 80 Kw.
Although the electric meter measures demand over 15 minute intervals, it stores only the highest 15 minute period recorded during the billing period. This reading is used to compute demand charges on your electric bill (subject to a minimum demand charge explained later under "Ratchets").
After the meter reader takes your monthly reading, the meter is reset to zero and the meter begins recording for the next monthly period.
As an incentive to control demand costs, it's important to understand that your meter only records coincidental demand for the peak 15-minute period in the month. That means you can control your electric costs by staggering the use of different equipment. For example, if you were to simultaneously operate a 45 Kw machine and a 75 Kw machine, you would record 120 Kw on the demand meter. However, if you were to alternately operate these machines, the maximum reading would only be 75 Kw because the 45 Kw unit only operates when the 75 Kw unit is off and the meter only stores the highest demand. The total monthly bill would be $2,373.00 (summer)/$2,089.50 (winter). With interlocks and controlling devices, it's eay to operate some equipment this way.
Remember, each Kw saved in this example is worth $15.00 (summer)/$12.50 (winter) per month. In this case it amounts to $675.00 (summer)/$562.00 (winter) per month. We currently have customers with large equipment that are able to take advantage of such savings. However, there are many others who could be saving but aren't.
There are many ways to manage demand, ranging from manual controls and time-clocks to sophisticated automatic units that program buildings and processes. For the average commercial building, the best control over electrical demand may not be in the electric system, but in the building itself. Good thermal design - tight construction, good window design and appropriately sized ventilation systems - is the key to limiting and avoiding demand charges. It creates less need for heat and cooling, allowing you to select smaller, more cost-effective equipment.
Sometimes there may be a difference between the recorded demand taken from the meter and the demand charges billed. This difference is due to a billing feature known as a "Demand Ratchet." The Demand Ratchet creates a minimum seasonal demand charge stating that the minimum billed demand for any of the summer months (June - September) shall not be less than 80% of the highest recorded demand during the previous three summer months. In addition, the minimum billed demand for any of the winter months (October - May), shall not be less than 80% of the maximum recorded demand during MMU's preceding summer months. For instance, if a building uses a peak of 120 Kw during one of the previous three summer months, the billed demand for the next summer month will be at least 96 Kw (80% of 120 Kw). Similarly, the billed demand for any following winter month would be 96 Kw (80% of 120 Kw). This remains true even if the recorded demand falls below 96 Kw. The Ratchet was created to maintain the expensive infrastructure needed to handle the summer peak demand. Because there is a substantial cost involved in maintaining generators, substations and transformers, utilities and public service commission's across the country have determined that the Ratchet is the fairest way to bill customers who create seasonal power peaks.