Peak Demand

What Is Peak Demand in Electricity

Peak demand in electricity is the highest level of power a building draws from the electrical grid during a short measurement interval within a billing cycle. Utilities measure this demand in kilowatts (kW), which represents the rate at which electricity is being used at a given moment.

Unlike total electricity consumption, which is measured in kilowatt hours (kWh), peak demand reflects how quickly electricity is used during a specific period of time. Even a building with relatively low overall energy use can create a high peak demand if large equipment operates simultaneously.

Because electrical infrastructure must be built to handle these short periods of high load, peak demand in electricity plays a central role in how commercial electricity bills are calculated.

How Utilities Measure Peak Demand

Utilities measure peak demand from the interval meter data that smart meters record in short time intervals. Most commercial meters store this data every 15 or 30 minutes.

For each interval, the meter calculates the average demand in kilowatts based on the energy used during that period. Over the course of a month, hundreds of these intervals are recorded.

At the end of the billing cycle, the utility identifies the highest interval demand recorded. This value becomes the building's peak demand for the billing period.

How Demand Charges are Calculated

Demand charges are calculated using the building's peak demand and the demand rate defined in the utility tariff.

Meters determine demand using what is often referred to as the peak demand formula:

Peak Demand (kW) = Energy Used During Interval (kWh) / Interval Length (hours)

During each measurement interval, the meter converts energy usage into an average demand value in kilowatts. The highest demand interval recorded during the billing cycle becomes the building's peak demand.

The demand charge on the electric bill is then calculated using:

Demand Charge = Peak Demand (kW) x Demand Rate ($ per kW)

Because this calculation is based on the highest interval rather than total monthly consumption, even a short spike in electricity use can significantly increase a building's demand charges.

For ComEd accounts, our demand charge calculator does this exactly: enter your peak kW and delivery class and it returns the Distribution Facilities charge straight from ComEd's tariff, the same ratebook we reconcile real bills to.

The grid no longer prices electricity by how much you use, but by when you use it.

How a Peak Demand Spike Sets the Charge

Because utilities bill on the single highest interval, a short spike can set the charge even when total energy use is modest. A peak like this often forms when a large load, such as an air compressor, runs continuously or overlaps with other equipment inside one interval. For most of the billing period the building may draw only a fraction of that, yet the one window is what the demand charge is built on.

How far that peak sits above the building's average draw is its load factor, the total kWh divided by the peak kW times the hours in the period. A low load factor means a short spike is carrying a large share of the delivery cost; a high one means the peak is close to how the building runs all month.

Rather than illustrate this with invented numbers, the section below reconstructs a real one, measured from the meter and reconciled to the bill to the cent.

A Reconciled Peak, Measured Across Four Meters

Peak demand becomes concrete when it is reconciled against a real bill. One commercial site metered on four separate meters was billed for a demand of 242.57 kilowatts in a mid summer period. Reconstructing that figure from the interval data required summing all four meters at each thirty minute interval, because ComEd bills the site coincident peak, the highest combined draw across the meters at the same instant, rather than the sum of each meter's own separate maximum.

The measured site coincident peak came to 242.568 kilowatts, matching the billed demand, and the recomputed demand charge equaled the bill to the cent. The peak fell at 2:00 PM, inside the on-peak window, and was also the highest interval of the whole period.

The same reconstruction runs on any ComEd commercial account with the free demand charge tool, which reads your interval data and shows the exact interval that set the charge, reconciled to the bill.

The coincidence rule is worth understanding on its own if your account carries more than one meter, because the per-meter numbers printed on the bill are not each meter's maximum and adding them up overstates your peak: which peak actually gets billed on a multi-meter ComEd site.

Why a Low-Energy Site Can Still Face a Large Demand Charge

In the reconciled example above, the site used only a modest amount of total energy, yet the delivery side of the bill still carried a demand charge far larger than that energy use would suggest, because demand and energy are measured differently. Supply is billed on the kilowatt hours you consume; the demand charge is billed on the single highest rate at which you drew power. A facility can be frugal over the month and still set an expensive peak in one interval, which is why the demand charge so often surprises.