Understanding Your Energy Bill Part #2 –- What are Demand Charges Anyway?

As if it isn’t confusing enough that electric utilities charge delivery charges and generation charges, they also have a funky little thing on business energy bills called a Demand Charge. What ARE all of these charges? And how do you make them go away?

Every utility has their own billing format and pricing structure. The most popular utility in our service area is NSTAR, so most of the examples in this blog will refer to the typical NSTAR bill for a medium sized business.

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NSTAR is an energy re-seller. They deliver electricity but do not necessarily generate it. Because of this, there are separate charges for delivery and generation. The fee for delivering your energy covers the cost of building and maintaining wires. The generation fee pays for the energy NSTAR buys from the generating plant. These, among a few other small miscellaneous charges and taxes make up the “usage” part of your bill.

In addition to usage charges, there is another significant charge called a Demand Charge. NSTAR electric meters automatically record the peak level of energy demand during every month. The idea behind a Demand Charge is that the utility must have enough energy available to satisfy your peak demand at any given time. You won’t always be using your peak, but they must have it available, just in case. The Demand Charge is a way to offset the cost of the providing this just-in-case energy.

Here’s how a Demand Charge can affect your bill. If you consumed 15,000 kWh of electricity during the month, your usage charges might look like this:

Delivery Charges (per kWh)        8.6 cents x 15,000 kWh    =   $1,290

Generation Charges (per KWh)  8.0 cents x 15,000 kWh    =     $1,200

Total Usage Charges               =          $2,490

The demand charge captures the moment you had the most items turned on at once. Let’s assume your peak demand was registered at 60 kW this month. Peak demand only a snapshot of energy consumed it is measured in kilowatts (kW) versus energy consumed over time which is measured in kilowatt-hours (kWh). Your Demand Charge would be as follows:

Peak Demand           60 kW

1st 10 kW is free    -10 kW

Adjusted Peak         50 kW

Demand Charge (per kW)     $4.86 x 50 kW    =     $243


Although energy consumption is clearly the major part of the energy expense, the Demand Charge (equal to 10% of the total energy bill in this case) is controllable and should be part of the overall energy strategy.

Energy accounts for about 30% of operating costs for a building, according to the Building Owners and Managers Association (BOMA). Though no one can make their energy bills go away completely – short of resorting to using candlelight and the abacus – there are strategies to get the most out of your energy dollar. Check out our website for more info:  https://www.advanceair.net/building-automation.htm.