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What is the demand charge on my business account electricity bill?

​Demand is the rate at which electric energy is used at any instant or averaged over any designated period of time and is measured in kilowatts (kW). The demand kW is measured by the electric meter as the highest average demand in any 15-minute period during the month. This is the amount of electric load required by the customer’s electric equipment operating at any given time. Transmission and distribution utilities must have sufficient electric capacity such as properly sized transformers, service wires and conductors to meet customers kW demand. The demand kW is recorded for billing the demand charge each month and then reset on the bill cycle date. A customer’s 10 kW demand operating for one hour equals 10 kWh, which is the accumulative kWh reading on the meter.
The demand charge is a billing mechanism used to recover the cost of providing transmission and distribution service to non-residential customers with a maximum load of greater than 10 kW (i.e., demand for electricity in kilo-Watts or kW). Since Oncor’s transmission and distribution systems are sized for the maximum load of the customers using the systems, the cost driver for providing transmission and distribution service is demand. In order to better align the costs of building and operating those systems with a customer’s use of the system, a demand charge is applied to the maximum demand (kW) that is recorded on a customer’s meter during the month. A minimum demand provision may be applied for 12 months in order to level out the recovery of the fixed costs of the transmission and distribution system necessary to serve a customer’s maximum or peak demand. The minimum demand provision is called a demand ratchet. All transmission and distribution utilities in Texas apply an 80 percent demand ratchet provision to a customer’s peak demand. For example, if a non-residential customer registers a peak demand of 20 kW in a month, for the next 11 months the minimum demand used for billing purposes is 80 percent of 20 kW or 16 kW, assuming that customer does not exceed 16 kW during the next 11 months. If the customer registers 30 kW, the minimum kW for billing purposes becomes 80 percent of 30 kW or 24 kW for the next 11 months. A ratchet is not applied to certain Seasonal Agricultural customers or customers whose demand is less than 20 kW but greater than 10 kW.
View Sections - .5 of Oncor’s Tariff for Retail Delivery Service (http://www.oncor.com/pdf/tariffs/Tariff%20for%20Retail%20Delivery%20Service_Searchable_06-09-10.pdf) describing the delivery charges for non-residential delivery service invoiced to the customer’s retail electric provider for more information on demand charges.
-Mike M., Oncor Demand Expert