Demand charges: what they are and how to lower them (Texas)

What does demand mean on my bill?

Demand is the highest rate at which your business uses power during the billing period, measured in kilowatts (kW). It is a peak, not a total. Your bill may show it as demand, billing demand or kW, and sometimes in kVA.

Usage is the total energy you used over the month, measured in kilowatt-hours (kWh). A demand charge is priced on the peak kW; a usage charge is priced on the total kWh.

Demand vs usage: why two similar bills differ.

Think of usage as the distance a car drives in a month and demand as its top speed. Two kitchens can use the same kWh in a month. The one that switches on its ovens, fryers and air conditioning at the same moment sets a higher peak, so it can pay more in demand charges.

That is why demand matters most for businesses with heavy equipment that starts at once: restaurants, grocery stores with refrigeration, hotels and warehouses.

Who bills demand charges in Texas?

In the parts of Texas where businesses choose their electricity provider, the local utility (such as Oncor or CenterPoint) delivers the power and sets delivery charges in a tariff regulated by the Public Utility Commission of Texas. For larger business accounts, those delivery charges include charges based on demand. Your retail electricity provider passes them through on your bill.

Your utility’s tariff and rate class decide whether your account is billed on demand and how the peak is measured. Many small accounts are not billed on demand at all.

Each utility’s tariff sets the details; our guides to Oncor and CenterPoint delivery charges explain them.

What is a demand ratchet?

A demand ratchet lets a utility bill you on the higher of this month’s peak or a fixed percentage of your peak in previous months. One hot afternoon can then raise your demand charges for months afterwards.

Texas limits this. Under Public Utility Commission of Texas Substantive Rule 25.244, a demand ratchet may not apply to a nonresidential secondary voltage customer whose annual load factor is 25 percent or less. Load factor compares your average use with your peak: a business that runs steadily has a high load factor, and one with short, sharp peaks has a low one.

What is 4CP?

ERCOT, which runs most of the Texas grid, calculates four coincident peaks (4CP): the grid’s peak demand in June, July, August and September. Some larger accounts are billed transmission charges based on their own demand during those four peaks. Your utility’s tariff says whether this applies to your account.

Businesses billed this way try to cut use during likely peak hours on the hottest summer afternoons, because a lower reading in those intervals can lower transmission charges for the following year.

How to lower demand charges.

• Stagger start-up: bring ovens, fryers, compressors and air conditioning online a few minutes apart instead of all at once.
• Pre-cool or pre-heat before opening, when the rest of the building is quiet.
• Check for equipment that runs when it does not need to, such as hood fans or heaters left on after close.
• Look at your bill’s demand line each month, so you can tie a high reading to what happened that day.
• If your account is billed on 4CP, plan for the hottest summer afternoons.

Reducing peak demand can help manage these charges. How much depends on your utility’s tariff and your equipment.

Does a new supply contract change demand charges?

Usually not. Demand charges are part of delivery, set by your utility’s regulated tariff, and they apply whichever supplier you choose. A new supply contract changes the supply rate. Our guide to reading a commercial electricity bill shows which parts are which.

When we review your bill, we look at the supply charges and usage, and we flag demand and other delivery charges so you can see the whole picture. Start with your business ZIP and add your bill when you have it.