Commercial electricity
Demand charges, explained
A demand charge bills the highest rate of power you drew at any point in the month, measured over a 15- or 30-minute interval and charged per kilowatt. It is separate from the kilowatt-hours you consumed, it sits on the delivery half of the bill so switching supplier does not touch it, and the kW you are billed for is frequently higher than the kW your meter recorded.
Figures below are read from the tariffs each utility files with the Public Utilities Commission of Ohio.
Energy and demand are different measurements
The usual analogy is a water bill, and it works. Kilowatt-hours are how much water you used over the month. Demand is the widest the tap was ever opened. The utility has to build pipes for the widest moment, not the average one — which is what the demand charge pays for.
The practical consequence: two businesses can consume identical kilowatt-hours and pay very different bills. A bakery running ovens from four to nine in the morning has a sharp peak and a low load factor. An office drawing steadily through the working day has the same total usage and a much lower demand charge.
One interval sets the whole month
Demand is measured over an interval, not an instant — 15 or 30 minutes depending on the utility. Ohio Edison and AES Ohio both bill on the highest 30-minute integrated demand. A one-second surge when a compressor kicks in does not set your demand; sustained load across the full interval does.
But once it is set, it is set. A single half-hour in which three pieces of equipment happened to run together can raise the demand charge for the entire billing period, and on some tariffs for months afterward.
The kW you are billed is often not the kW you drew
This is the part almost nobody knows, and it is written into the tariff. Two mechanisms both adjust billing demand upward:
A floor on billing demand
Ohio Edison's Rate GS bills the greater of your measured demand, 5 kW, or your contract demand. A business whose peak never exceeds 5 kW still pays for 5 kW.
A minimum load factor
Duke Energy Ohio's Rate DS states that if monthly kWh divided by peak kW falls below 71, billing demand is recalculated as kWh ÷ 71. A business with 4,000 kWh and a 100 kW peak has a load factor of 40 — so it is billed on 56.3 kW rather than a figure derived from its actual peak.
How the charge is structured varies by schedule
Not every commercial tariff bills demand the same way, and some do not bill it at all. Three examples from Ohio:
| Schedule | Demand charge | What it means |
|---|---|---|
| Ohio Edison GS | $12.80/kW to 5 kW, then $5.4635/kW | Stepped. The first 5 kW cost more than twice what each kW above costs, so the charge is front-loaded onto small accounts. |
| Duke DM | None | Available under 15 kW of average monthly demand. No demand charge at all — which is why crossing that threshold changes a bill so sharply. |
| Duke DS | $6.9678/kW | Flat on every kilowatt, from the first one, plus the minimum load factor rule above. |
Switching supplier will not fix it
A commercial bill has two halves. Supply is the electricity itself, and in a deregulated state you can buy it from whoever you like. Delivery — poles, wires, meter, and the demand charge — is regulated and comes from your utility regardless.
So a business that switches supplier to fix a high bill, when the rise came from demand, has changed the wrong half. That is worth knowing before signing a supply contract, and it is the single most common misdiagnosis on a commercial bill.
What actually lowers it
- Flatten the peak. Stagger equipment startups so the compressor, the ovens and the HVAC do not all draw within the same interval. Most utilities will provide 15-minute interval data on request, which shows you exactly when the peak happened.
- Check the schedule. If your usage dropped below your utility's demand threshold, you may qualify for a schedule with no demand charge — but the utility will not move you automatically. You have to ask.
- Check the direction too. Crossing a threshold upward can also be worth it: a higher schedule sometimes has a lower energy rate that more than offsets the demand charge.
- Watch the load factor rules. If your peak is sharp and your usage low, a minimum load factor clause may be billing you for demand you never drew — and flattening the peak is the only fix.
Working out whether your demand charge is a peak problem or a schedule problem means pricing your usage under every schedule your utility files. Send us a bill and we will tell you which it is — including when the answer is that you are already on the right one.
Send my billFree, and we don’t take commissions from suppliers.
A demand charge sits on the delivery half of the bill — what that half is and why it cannot be shopped. More on how each Ohio utility bills: rates by utility, or what a utility bill audit finds.
Common questions
What is a demand charge?
A charge for the highest rate of power you drew at any point in the month, billed per kilowatt, separate from the kilowatt-hours you consumed. Energy is how much you used; demand is how fast you used it at your busiest moment.
Why is my demand charge so high when I barely used any electricity?
Because the two are measured differently. A single 15- or 30-minute spike sets your demand for the whole month, even if the rest of the month was quiet. Two businesses using identical kWh can pay very different demand charges depending on whether their load is steady or spiky.
How is demand measured?
Over an interval, not an instant — typically 15 or 30 minutes, depending on the utility. Ohio Edison and AES Ohio both bill on the highest 30-minute integrated demand. A one-second surge does not set your demand; sustained load over the full interval does.
Can I be billed for more demand than my meter recorded?
Yes, and it is common. Some schedules set a floor — Ohio Edison's Rate GS bills a minimum of 5 kW no matter what the meter says. Others recalculate demand from your load factor: Duke's Rate DS resets billing demand to monthly kWh divided by 71 when usage is low relative to peak.
Does switching electricity supplier lower my demand charge?
No. Demand charges are part of delivery, which is regulated and set by your utility. A competitive supplier only changes the supply half of the bill. If demand is what raised your bill, switching supplier changes nothing.
How do I reduce a demand charge?
Either flatten the peak — stagger equipment startups so they do not all draw at once — or change rate schedule if your usage no longer matches the one you are on. The second is the more common fix and the one nobody checks, because it needs the utility's filed tariff rather than a look at the building.