Peak Demand Charge Calculator

Commercial and industrial electricity bills often include two separate charges: a usage charge (for kWh consumed) and a demand charge (for the peak rate of consumption during the billing period). Residential customers rarely see demand charges, but small businesses often do — and the demand charge can easily be 30-60% of the total bill.

What is a demand charge?

The utility measures your peak power draw (in kilowatts) at 15-minute intervals throughout the month. The highest 15-minute average becomes your billing demand. You pay for that peak whether or not you use it again.

Example: a restaurant draws 80 kW during lunch prep for 20 minutes one day. The rest of the month it averages 40 kW. The billing demand is 80 kW, and the demand charge applies to the full 80 kW.

The formula

Demand charge = peak kW x demand rate ($/kW-month)

Usage charge = monthly kWh x usage rate ($/kWh)

Total bill = demand charge + usage charge + fixed fees

Typical demand rates range from $5 to $25 per kW-month depending on the utility and rate class. A 50 kW peak at $15/kW adds $750 to the monthly bill — the same whether you hit that peak once or every day.

Load leveling strategies

Because demand charges bill on the peak, flattening that peak saves money even if total energy use stays the same. Strategies include: staggered equipment startup (avoid simultaneous motor starts), battery systems that discharge during peak loads and recharge overnight, shifting large intermittent loads (ovens, compressors) to off-peak, and on-site solar to shave peak draw during daytime hours.

A 10 kW demand reduction at $15/kW-month saves $150/month or $1,800/year — which justifies significant capital investment in load management equipment.