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Correcting Peak Demand Charges on Electricity Bills: A Guide for Commercial Enterprises

If you are running a business, a school, a hospital, or a farm, then you may be paying too much on peak demand charges on your electricity bills. Peak demand ensures that there is adequate power available when it is most needed. However, excessive peak demand follows a great amount of peak demand charges, in which errors can happen unexpectedly.

This article discusses what are peak demand charges, what is its purpose to your commercial enterprises, common errors in electricity bill peak demand charges, and how to correct these sizable amounts of your overall bill.

What Are Peak Demand Charges?

The term “demand charges” describes the fees charged by utility companies according to the rate at which energy is consumed at its peak. Demand costs are centered on the amount of power needed at a given time, as opposed to energy charges, which are based on the overall amount of energy used within a billing cycle. 

The peak kW usage in a billing period that falls within a given time frame is used to compute demand charges. Peak demand charges are extra fees that are frequently imposed on commercial and industrial businesses, such as restaurants or manufacturing companies, that use energy-intensive equipment during periods of high electricity demand. 

What Is the Purpose of Peak Demand Charges?

It might be challenging to understand your electrical bill statement because there are many variables that go into calculating the costs. The demand charge is one of the most important—yet frequently misinterpreted—of them. 

Energy consumption costs may be the main focus for many businesses, even though demand charges can be seen for 30–70% of commercial electricity bills

  • Paying for the expenses of a larger grid capacity, which is required to maintain stability during peaks in demand from big energy users.
  • Businesses should be encouraged to reduce their peak demand because doing so lowers their electricity costs.
  • Encouraging companies to use a distribution network’s energy capacity more sparingly at times of high demand.
  • Lowering the requirement for utilities to construct additional power plants in order to satisfy peak demand.

Common Errors on Electricity Bill Peak Demand Charge

For companies that utilize a lot of energy, this often ignored aspect of energy expenses can have a big financial impact, especially if improperly managed. To mitigate these errors, businesses should regularly monitor their energy usage, ensure meters are properly maintained and calibrated, and communicate with utility providers to address any discrepancies or billing errors promptly. Conducting regular audits or seeking professional guidance can also help in identifying and rectifying errors related to peak demand charges on electricity bills.

  • Incorrect Reading of Peak Demand — Utility companies determine peak demand by measuring the highest amount of power used during specific intervals (often in 15-minute increments) within a billing period. Errors can occur if meters malfunction, fail to record peak usage accurately, or if there are discrepancies in the recorded peak demand.
  • Mismatched Peak Demand Period — Peak demand periods might vary based on the utility provider, and billing might depend on specific times of the day or seasonal changes. Errors can occur if the billed peak demand doesn’t align with the actual peak usage periods for a business.
  • Metering Inaccuracies — Inaccurate meter readings can lead to incorrect peak demand calculations. Malfunctioning or improperly calibrated meters might register peak demand levels that do not truly represent the business’s actual peak usage, leading to overcharging.
  • Misinterpretation of Contract Terms — Errors may arise if there are misunderstandings or discrepancies between the terms outlined in the electricity supply contract and the actual calculations on the bill. This might include incorrect application of agreed-upon rates, terms, or calculation methods.
How to Correct Errors from Peak Demand Charges on Electricity Bills

Apartment buildings, hotels, workplaces, and schools are among the customers with high peak demand. Because of the significant demand they experience during specific times of the day for things like air conditioning, heating, hot water, and lighting, which are only needed for a small portion of a 24-hour period, these high demands generate challenges for them. Due to the additional expense of building and maintaining this capacity, a peak demand charge is included in the monthly utility bills.

Here are valuable tips to correct errors from peak demand charges on electricity bills.

  • Review Electricity Bills Thoroughly — Carefully examine the electricity bills, focusing on the peak demand charges and associated details. Ensure that the billed peak demand aligns with the actual usage patterns and the terms outlined in the supply contract.
  • Compare Data and Records — Cross-reference the billed peak demand with internal records of energy usage, particularly during the designated peak periods. Ensure meter readings and usage data align with the billed charges.
  • Identify Discrepancies and Errors — Note any discrepancies, such as inaccuracies in meter readings, peak demand calculations, incorrect timeframes for peak demand periods, or deviations from contracted terms.
  • Gather Evidence and Documentation — Collect supporting evidence, including historical usage data, meter readings, contract terms, and any documentation that validates the actual peak demand compared to what’s billed.
  • Contact the Utility Provider — Reach out to the utility provider’s customer service department or billing department. Explain the identified discrepancies politely and provide documented evidence supporting the correct peak demand figures.
  • Request Correction and Resolution — Request a review of the billed peak demand charges and ask for a correction if an error is confirmed. Provide the evidence you’ve gathered to support your case for the adjustment.
  • Seek Professional Assistance — If disputes persist or the utility provider does not rectify the errors, consider engaging a professional energy consultant or a lawyer specializing in utility disputes.
FAQs

What are peak demand charges on electricity bills, and how are they calculated?

Peak demand charges represent the highest level of electricity usage within a specific time interval (usually 15- or 30-minute periods) during a billing cycle. These charges are based on the maximum amount of power consumed by a business at any given time and are calculated based on the highest recorded demand level, often measured in kilowatts (kW).

How do businesses determine their peak demand periods, and why are they important?

Peak demand periods are usually defined by utility providers or detailed in supply contracts. These periods often coincide with times of the day when overall energy consumption is at its highest. Identifying peak demand periods is crucial because utility companies charge higher rates for electricity consumed during these peak times to cover the costs of infrastructure required to meet these maximum demand levels.

What factors can influence peak demand charges on electricity bills for businesses?

Several factors can impact peak demand charges, including operational schedules, equipment usage, production processes, and climate conditions. Any sudden spikes in energy usage, such as starting large machinery simultaneously, can significantly impact peak demand and subsequently affect charges.

Conclusion

At Utility Applied Auditors, we help businesses understand even the most complex electricity expenses, including ways to save on energy. If you want to maximize your electric efficiency, especially during peak demand hours, contact us today. Our qualified experts will review your bills to determine exactly what you are spending and why and offer suggestions for cost-saving measures.