Understanding Electric Energy Demand

Understanding the way you are billed for electrical energy may, at times, seems confusing. This is because, unlike other products, electrical energy cannot, in a practical sense, be stored.

Rather, it needs to be generated and supplied as your equipment calls for it. Day or night, the utility supplier must instantly be able to meet your requirement for electricity.

Your demand for electricity, and the flexibility needed to supply this electricity during peak times leads to "demand charges".

What are Demand Charges?

This equipment must be sized to meed the maximum amount of potential electricity that customers may require, or, in other words, the "peak period demand".

The equipment needed to respond to peak electric energy demand (KW) is extremely expensive. While some commercial customers may need this equipment only intermittently, others need it almost constantly.

In order to distribute the costs associated with meeting peaks, utilities utilize separate charges for demand.

Although it is often thought that residential customers are not assessed electric energy demand charges (KW), the rate they pay is actually a combination of consumption (KWH) and demand (KW)charges. This one charges is more economical to implement.

Demand vs. Energy

Suppose you operate a building with lighting, cooling, and miscellaneous electric equipment. The maximum installed load totals 120 kilowatts (KW).

Assume that the demand rate is $10.65 per KW, and the energy rate is $0.092 per kilowatt hour (KWH). You are not using the building and have no employees.

However, on the first day of each month you turn on all the electrical equipment-all 120 KV- for 15 minutes. Afterward, you shut everything off and leave until the following month.

What will your monthly electric bill reflect? It would note very little consumption, only 30 kilowatt hours, (120 KW multiplied by .25 hours), and would cost about $2.76 (30 KWH multiplies by $0.092 per KWH).

However, your demand charges are for 120KW and would cost $1,278 (120 KW multiplied by $10.65 per KW)-resulting in a unit cost of $42.69 oer KWH (the sume of $1,278 and $2.76 divided by 30 KWH). Of course, this is an extreme example of an inefficient user of electricity.

It does , however, show the significant difference between energy use in KWH and demand in KW.

Let's consider another example wherein the same building operates on a standard 4-hour week. The monthly energy use increases to 19,200 KWH (120 KW multiplied by 160 hours per mnth), which would cost $1,766.40.

However, demand would remain at 120KW and the cost at $1,278. The unit cost of this usage is $0.159 per KWH.

Recording Demand

If the building was using 120KW for the first 10 minutes of an interval, and then completely shut down for the next five minutes of the interval, the recorded demand would be 80 KW.

Although the electric meter measures demand over 15 minute intervals, it stores only the highest 15 minute period during the billing period. This reading is used to compute demand charges on your electric bill (subject to a minimum demand charge discussed below under "Ratchets").

After the meter reader takes your monthly reading, the meter is reset to zero and the meter begins recording for the next monthly period.

As an incentive to control demand costs, it's important to understand that your meter only records coincidental demand for the peak 15-minute period in the month.

That means you can control your electric costs by staggering the use of different equipment.

For example, if you were to simultaneously operate a 45 KW machine and a 75 KW machine, you would record 120 KW on a demand meter. However, if you were to alternately operate these machines, the maximum reading would only be 75 KW because the 45 KW unit only operates when the 75 KW unite is off and the meter only stores the highest demand.

With capacitors and other controlling devices, it's easy to operate some equipment this way.

Remember, each KW saved in this example is worth $10.65 per month. In this case it amounts to $479.25 per month, $5751 per year.

Controlling Demand

Because the electric energy demand (KW) meter only records coincidental demand, it is also possible to reduce heating, ventilation, and cooling (HVACs) demand by using several units to meet the buildings needs. If HVACs are widely dispersed, they turn on and off at irregular intervals. This limits coincidental demand.

Ratchets

The demand ratchet creates a minimum seasonal demand charge stating that the minimum billed demand for any of the summer months (June-September) shall not be less than 85% of the highest recorded demand during the previous three summer months.

In addition, the minimum billed demand for any of the winter months (October-May), shall not be less than 70% of the maximum recorded demand during any of the preceding summer months.

For instance, if a building uses a peak of 120KW during one of the previous three summer months, the billed demand for the next summer month will be at least 102KW (85% of 120KW).

Similarly, the billed demand for any following winter month would be 84KW (70% of 120KW). This remains true even if the recorded demand falls below 84 KW.

As you can see, this can be a little confusing. It can also lead to billing errors.

If you would like to learn how a contingency based utility bill audit can benefit you, please contact Utility Refund Solutions.

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