Understanding Your Distribution Charges

While consumption is widely used to measure and recover a portion of the utility’s cost to provide service, especially for rate classes with smaller infrastructure, it is not the most equitable form of cost recovery method for customers with larger infrastructure and increasing electricity usage habits. The utility’s cost to deliver reliable, safe and readily available electricity is primarily dictated by customer’s peak demand.

Energy is not stored like a water reservoir for future allocation. Therefore, peak customer demand has a greater influence on the utility’s distribution and transmission infrastructure as opposed to customer consumption. The electrical utility infrastructure must be maintained to ensure that the peak demand is readily accessible at any time during the day and year.

Demand-based billing is advantageous and cost-effective for customers with increasing electrical usage as it incentivizes consistent energy usage (i.e., travelling at a consistent speed rather than frequent starts and stops). 

Consider the graphic below, which shows that both Customer A and Customer B require the same peak demand from the distribution system. Regardless of the length of time electricity demand was required, as shown in the different consumption calculations, both customers are requiring the same level of infrastructure to be accessible. The utility infrastructure needs to be operated and maintained to serve both customers’ capacity needs regardless of duration.  

Your meter

Most commercial customers have a demand meter that displays both consumption and demand.

A demand meter measures energy consumption over time in kWh and registers the rate of consumption in kVA, storing the maximum demand value (or ratchet demand) in a register.

Much like a car’s odometer records distance travelled, the electric meter records consumption. It also functions as a speedometer to measure the rate of consumption (demand).

The meter only records the peak demand achieved during the billing period, which is why it is often referred to as ratchet demand.

Controlling your demand

In an effort to use electricity efficiently and to better manage one’s delivery charges, it is important to consider the following:

1. Consider and review the manufacturer’s power ratings and duration of usage before purchasing power tools, equipment, electric vehicle chargers, and/or appliances.  The larger the wattage, the greater the demand.
2. Where possible, try not to have multiple pieces of equipment operating at the same time. Load shed devices can offer operational functionality.
3. Contact an experienced electrician to discuss your options.

The Utilities Consumer Advocate provides tips to reduce demand charges.