Electricity Demand Charge Calculator
Enter the usage, billed peak demand, rates, and billing days from a commercial electric bill. The calculator separates energy and demand charges, then estimates the savings from reducing the peak kW.
Current demand charge$2,250.00
- Current energy charge
- $6,000.00
- Current energy-and-demand subtotal
- $8,250.00
- Load factor
- 46.3%
- Effective electricity cost
- $0.17
- Projected peak demand
- 120
- Projected monthly subtotal
- $7,800.00
- Monthly demand-charge savings
- $450.00
- Annual demand-charge savings
- $5,400.00
Assumes one energy rate and one demand rate apply for the whole billing period.
Excludes fixed customer charges, taxes, riders, minimum bills, tiered energy prices, demand ratchets, and time-of-use demand windows.
How to use this calculator
- Enter the billing-period kWh and peak billed demand from the same electric bill.
- Enter the energy rate and demand rate as separate line-item rates.
- Use the number of service days printed on the bill.
- Enter a planned kW reduction to estimate monthly and annual demand-charge savings.
How the demand charge is calculated
Many commercial electric bills charge for both energy and demand. Energy is the total electricity used during the billing period, measured in kilowatt-hours. Demand is the highest power level the utility bills for, measured in kilowatts, often from a short interval such as 15, 30, or 60 minutes.
This calculator starts with the figures that are usually visible on a bill: monthly kWh, billed peak kW, the energy rate, the demand rate, billing days, and a planned peak reduction. Let E be monthly usage in kWh, P be current peak billed demand in kW, rE be the energy rate in dollars per kWh, rD be the demand rate in dollars per kW, N be billing days, and X be the planned peak reduction in kW.
The energy charge is CE = E x rE. The current demand charge is CD = P x rD. The current subtotal is C = CE + CD.
Load factor compares actual kWh with the energy that would have been used if the peak kW had run all month: L = E / (P x 24 x N) x 100%. A higher load factor usually means the facility uses electricity more steadily, while a lower load factor means sharper peaks relative to total use. If peak demand is zero, load factor is not defined.
Effective electricity cost spreads the energy-and-demand subtotal over usage: A = C / E. It is shown as dollars per kWh and is not defined when monthly usage is zero.
Estimating savings from reducing peak demand
The planned reduction is capped at the current peak because a bill cannot go below zero billed kW in this simple model. Applied reduction is XR = min(X, P), projected peak is P2 = P - XR, projected subtotal is C2 = CE + P2 x rD, monthly savings are S = XR x rD, and annual savings are Y = 12 x S.
The demand rate and the amount of peak reduction move the savings directly. A 10 kW reduction at $20 per kW saves $200 for that month before taxes and other fees. Changes to energy use are separate; this calculator assumes the peak reduction does not change total kWh.
What this calculator leaves out
The estimate excludes fixed customer charges, taxes, riders, minimum bills, tiered energy charges, and utility-specific fees. It assumes one energy rate and one demand rate for the full billing period.
It also does not model demand ratchets, coincident peaks, seasonal schedules, time-of-use demand windows, minimum billed demand, kVA billing, or power-factor adjustments. If your bill uses any of those rules, use the result as a first check and compare it with the tariff or a utility account representative.
Worked example
Suppose a facility used 50,000 kWh in a 30-day billing period, had 150 kW of billed demand, paid $0.12 per kWh for energy, and paid $15 per kW for demand. The energy charge is 50,000 x $0.12, or $6,000. The demand charge is 150 x $15, or $2,250. The current energy-and-demand subtotal is $8,250.
Load factor is 50,000 / (150 x 24 x 30) x 100, or 46.30%. Effective electricity cost is $8,250 / 50,000, or $0.165 per kWh. If the facility can reduce the peak by 30 kW, projected peak demand is 120 kW, the projected monthly subtotal is $7,800, monthly demand-charge savings are $450, and annual demand-charge savings are $5,400.
Common questions
What is a demand charge on a commercial electric bill?
A demand charge is a bill line based on the highest billed power level during the billing period, usually measured in kilowatts. It is separate from the energy charge, which is based on total kilowatt-hours used. Demand charges help utilities recover capacity costs tied to peak load.
What is the difference between kW demand and kWh usage?
Kilowatts measure the rate of power use at a point in time or over a short interval. Kilowatt-hours measure total energy used over time. A facility can have modest monthly kWh but a high demand charge if several large loads run at the same time.
How do I find the demand rate and billed demand on my bill?
Look for line items labeled demand, billed demand, facilities demand, or kW. The billed demand is usually a kW quantity, and the demand rate is usually shown as dollars per kW. Use values from the same billing period as the kWh usage.
What is a good electricity load factor?
A higher load factor means usage is steadier relative to the monthly peak. Many commercial accounts improve load factor by staggering equipment starts, shifting flexible loads, or reducing short high-demand events. A load factor above 100% usually means the entered kWh, billed demand, or demand-measurement rule is not a simple match.
How can businesses reduce peak demand?
Common methods include sequencing motors and compressors, shifting discretionary equipment away from the peak interval, using controls to limit simultaneous loads, and reviewing HVAC start schedules. Batteries or on-site generation can also reduce billed peak demand when they are dispatched during the correct interval.
Do demand charges apply to residential customers?
Most residential electric bills charge mainly for kWh, fixed customer charges, and riders, but some utilities have residential demand rates or optional demand plans. Check the rate schedule on the bill before assuming a home account has no demand component.