How to Read a Commercial Electricity Bill
Supply vs Delivery: The Two Parts of an Electricity Bill
How to read a commercial electricity bill begins with understanding the two major components that determine most electricity costs: electricity supply and electricity delivery.
Supply represents the cost of the electricity purchased from the supplier. It is calculated by multiplying electricity usage, measured in kilowatt hours (kWh), by the supply rate.
Supply cost = electricity usage (kWh) × supply rate ($/kWh)
Delivery represents the cost of transporting electricity through the utility grid and maintaining the infrastructure required to serve the building. Delivery charges typically include a demand charge based on peak power demand.
Demand charge = peak demand (kW) × demand rate ($/kW)
Peak demand is the highest metered power demand recorded during the billing period. Even if that level of demand occurs briefly, the electrical grid must be capable of supplying it.
The Numbers That Determine Most Electricity Costs
The annotated bill below highlights the variables that determine most commercial electricity costs.
In the supply section of the bill, the electricity supply rate is $0.0957 per kWh. This rate is multiplied by the total electricity usage of 82,446.31 kWh.
82,446.31 kWh × $0.0957 = $7,890.11
This produces the electricity supply cost of $7,890.11, which represents the cost of purchasing electricity from the supplier.
The delivery section of the bill is largely driven by the demand charge. In this example, the facility has two meters that contribute to the total peak demand.
Meter 1 peak demand
110.78 kW
Meter 2 peak demand
131.78 kW
Total peak demand
110.78 kW + 131.78 kW = 242.57 kW
The demand charge is calculated using the demand rate of $14.92 per kW.
242.57 kW × $14.92 = $3,619.14
This produces the demand charge of $3,619.14, which represents more than 90 percent of the delivery portion of the bill.
“The grid must be built to serve your highest demand, not your average usage.”
How Utilities Measure Peak Demand
Electric meters measure the rate at which electricity is being used at a given moment. Utilities determine peak demand by identifying the highest metered demand recorded during the billing period.
Demand is measured in kilowatts (kW), which represent the instantaneous rate of electricity use. This differs from electricity usage, which accumulates over time and is measured in kilowatt hours (kWh).
The peak demand value represents the maximum amount of power the facility required from the electrical grid during the billing period.
Because the grid must always be capable of supplying this maximum demand, utilities use peak demand as the basis for demand charges.
Even if a demand spike occurs briefly, the infrastructure required to supply that peak must still exist.
Why Electricity Bills Alone Cannot Explain Your Costs
Electricity bills summarize the final billing determinants, but they do not show how electricity demand changes throughout the day.
The bill shows the total electricity usage and the highest recorded demand, but it does not reveal when that demand occurred or what equipment was operating at the time.
For example, the bill may show a peak demand of 242 kW, but it does not explain whether that demand occurred during normal operating hours, during equipment startup, or during a brief spike in electricity usage.
Interval meter data provides a more detailed view by recording electricity demand at regular intervals throughout the day.
By analyzing interval data, building operators can identify when peak demand occurs, which systems are contributing to demand spikes, and whether electricity usage patterns can be adjusted to reduce demand charges.
Without this additional data, the electricity bill alone provides only a partial explanation of electricity costs.
Frequently Asked Questions
What is the difference between kW and kWh on an electricity bill
Kilowatts (kW) measure the rate at which electricity is being used at a given moment. Kilowatt hours (kWh) measure the total amount of electricity used over time. Supply charges on commercial electricity bills are based on kWh, while demand charges are based on kW.
What information appears on a commercial electricity bill
A commercial electricity bill typically includes electricity usage (kWh), peak demand (kW), supply charges, delivery charges, meter information, and taxes or regulatory fees. These values determine how the total electricity cost for the billing period is calculated.
How do you read electricity usage in kWh on a bill
Electricity usage in kWh represents the total amount of energy consumed during the billing period. This number is multiplied by the electricity supply rate to calculate the supply portion of the electricity bill.
How do you read a commercial electric meter
Commercial electric meters measure both electricity usage in kilowatt hours (kWh) and electricity demand in kilowatts (kW). The electricity bill summarizes these measurements and uses them to calculate energy charges and demand charges.
What is load factor on an electricity bill?
Load factor measures how consistently a facility uses electricity relative to its peak demand. Buildings with a low load factor have short periods of very high demand compared to their average electricity use, which can increase demand charges. Learn more in our guide to load factor and how it affects electricity costs.
What does peak demand mean on an electricity bill
Peak demand is the highest recorded electricity demand measured during the billing period. Utilities use this value to calculate demand charges because the electrical grid must always be capable of supplying that level of power.