Tuesday, June 9, 2009

Billing Demands

In discussions on the topic of energy, the term ‘demand’ carries multiple meanings. When referring to an individual consumer’s measured moment of maximum electricity consumption within the monthly billing period, the term billing demand is used to distinguish this from the aggregate community demand as faced by the electric utilities. Billing demand is measured in kilowatts (kW). Community demand is measured in megawatts (MW), or gigawatts (GW).

Electric utilities are very concerned about peak demand (or peak load) periods in which inordinately higher supplies of electrical power must be delivered over a sustained period to the community. These periods may occur on daily, monthly, seasonal, yearly, and climatic cycles.

In the structures of rate plans, there is often a billing demand component. This is more frequently a component of commercial rate plans, and less frequently a component of residential rate plans. In commercial rate plans, the typical duration of the period of measurement is fifteen or thirty minutes. When it occurs in residential rate plans it often has a longer duration. Frequently, the duration in residential plans is thirty minutes or an hour.

It is crucial to recognize that the billing demand measurement period can begin at any moment during the monthly billing cycle: day or night, weekday or weekend, holidays, emergencies, etc. This is the case for each measurement period even when a rate plan incorporates multiple distinct billing demand periods, as in some time-of-use (TOU) plans.

Arbitrary Timing of Billing Demand Measurement

A roving onset for billing demand measurement results in unpredictability: Thereby, defeating energy management strategies by diminishing their economic benefits. Most energy management strategies are designed to decrease energy consumption. By doing so, one might conclude that demand is also diminished. This is true for the majority of moments. However, one must account for anomalous peaks. An anomalous peak may begin at any moment within the monthly billing cycle. An example would be an extravagant holiday party with a multitude of guests and live music. You may have controlled your peak demand everywhere else throughout the entire month, but your tenth anniversary celebration will explode your electricity bill and devalue your investment in energy management. Less extreme examples abound. In order to affect billing demand, energy management measures must quell every potential peak of billing demand.

In combination with roving onset, the duration of the measurement period is an important magnifying factor. While a longer duration tends to soften the effects of short-lived anomalies, a shorter duration magnifies their effects.

The effect of local demand on a community’s aggregate demand is negligible. A community’s aggregate, peak demand is more closely correlated with aggregate local consumption, rather than aggregate local maximum demands. Local demand primarily affects the capacity requirements of the nearby grid. Controlling these requirements better controls the utility’s costs and therefore may lower the overall cost of energy. Rate plans should be designed to achieve this laudable goal. Yet, narrow measurement periods that diminish the predictability of energy management measures, and thereby their economic value, act in opposition to this goal most egregiously in just those areas where small businesses tend to congregate.

Solar energy is a consistent and reliable form of energy generation in Arizona. Its generation pattern correlates well with the community’s aggregate energy demands. Aggregate solar energy may be occasionally diminished due to weather, but in this circumstance the community’s aggregate demand also decreases. Yet, locally, fifteen or thirty minutes of overhead clouds will prevent solar from cancelling peak billing demand for that month.

Solar energy may not consistently match the consumption pattern of a particular business. These consumption patterns vary dramatically both across and within businesses. A solar electric energy system that is properly sized will perform effectively in reducing consumption. However, there is an inverse relationship between the size of a business and solar’s ability to diminish demand. Large businesses with highly-regular, primarily midday operations and larger solar electric systems are more likely to experience a predicted reduction in their maximum demand. Small businesses most often will not.

In practice, solar and other energy management strategies have little effect on billing demand because of the structures of rate plans. One mistake, on unusual event, one brief rise in demand and you will pay.

In the Arizona Public Service (APS) E-32 commercial rate plan the demand is “based on the average kW supplied during the 15-minute period of maximum use during the month.

Someone is betting you’ll slip up.


  1. Thanks for a very informative description of how "demand charges" are calculated. Your carefully worded explanation reveals the insidiousness of the "15-minute interval" in calculating demand charges.

  2. impressively professional. people in the field should be following this carefully.

    Joe Iksy