Demand Charge Calculator

How to use the demand charge calculator

A commercial electric bill is really two bills stacked together, and this tool splits them out so you can see each one. You enter your peak demand in kilowatts, the demand rate your utility charges per kW, your total monthly usage in kilowatt-hours, and the energy rate per kWh, and you get back the total bill, the demand charge, the energy charge, and the share of the bill the demand charge alone accounts for. Every field is pre-filled with a representative example — a 10 kW peak at $15 per kW, and 3,000 kWh at 12 cents per kWh — so you can watch the tool work before swapping in the numbers off your own statement. Nothing here is a bill prediction; it is an arithmetic breakdown of a two-part tariff.

Start with the peak demand, because it is the input most people misunderstand. This is your highest sustained power draw for the month, measured in kilowatts, not the energy you used over time. Utilities almost always read it as the single highest 15-minute interval in the billing period — the worst quarter-hour, not an average — so it captures the exact moment your loads stacked up the most. That is why a bakery firing every oven at once at five in the morning can carry a demand charge out of all proportion to its consumption. The default is 10 kW. If you do not know yours, it is printed on the bill, usually labelled peak demand, billing demand, or simply kW.

Next, the demand rate: the dollars-per-kilowatt your utility bills against that peak. Use your own tariff, because the spread is enormous. The National Renewable Energy Laboratory assembled demand charge rates from more than 10,000 US commercial and industrial tariffs in its Utility Rate Database work and found them ranging from under $5 per kW to over $50 per kW depending on territory, customer class and building type, with roughly $15 per kW the level at which peak-shaving battery storage starts to look economic. The $15 used here is an illustrative middle of that range, not a national figure. Then enter your monthly kWh and the energy rate per kWh from the same statement; the 12 cents used here is likewise illustrative, and the Energy Information Administration reported a US commercial average of 13.54 cents per kWh in May 2026.

Read the total first: demand charge plus energy charge, the bottom line your utility actually bills. Then look at the two pieces underneath, because they answer different questions — one is about how hard you pushed, the other about how much you used. Finally, the demand share tells you what fraction of the total the demand charge represents. On the defaults it lands at 29.4 percent, meaning almost a third of the bill is driven by one quarter-hour rather than by consumption. That figure is the cue to act. If the share is high, shaving the peak buys you more than trimming usage; if it is low, the reverse. Run the tool once with your real numbers, then again with a lower peak, and the gap between the two totals is exactly what flattening your demand is worth.

The formula

A commercial bill adds two independent charges. One bills the energy you used over the whole month; the other bills the single hardest moment of power you drew. Compute each on its own terms and add them — that sum is the total, and the demand piece divided by the total is the demand share. The two halves have different units for a reason: kilowatts are a rate of use, kilowatt-hours are an accumulated quantity, and a tariff that only charged for the second would leave the utility to size wires, transformers and generation for the first without being paid for it.

That is the whole logic of a demand charge. The grid serving you has to be built for your worst moment, not your average one, so the network cost is recovered against the peak. It is also why the charge is so unforgiving of spikes: an average would let a brief surge disappear into the rest of the month, and a peak reading refuses to. Residential customers rarely see this structure at all, which is why the concept surprises people the first time they take on a commercial meter.

demand charge = peak kW × demand rate
energy charge = monthly kWh × energy rate
total = demand charge + energy charge
demand share = demand charge ÷ total × 100

Worked example with the defaults: a 10 kW peak at $15 per kW gives a demand charge of 10 × $15 = $150; 3,000 kWh at $0.12 per kWh gives an energy charge of 3,000 × $0.12 = $360; the total is $150 + $360 = $510. The demand share is $150 ÷ $510 = 29.4 percent of the bill, set by peak power alone. Now hold the energy fixed and double the peak: 20 kW at the same rate is a $300 demand charge, a $660 total, and a demand share of 45.5 percent. The same electricity, the same meter reading, $150 more on the bill.

The demand charge is billed on your highest sustained draw, which utilities typically read as the peak 15-minute interval in the month. A single brief spike — a compressor, an oven and a chiller all starting within the same quarter-hour — can therefore set the demand charge for the entire month even though it lasted fifteen minutes out of roughly 2,880 such intervals. That is why two businesses using identical kWh can pay very different bills, and it is why the fix is scheduling rather than conservation. Peak shaving means not running big loads simultaneously; load shifting means staggering or time-shifting heavy equipment, or covering the surge from batteries.

Two cautions before you act on the output. First, real tariffs are often more complicated than this two-part model: many apply a ratchet that carries a summer peak forward into later months as a minimum billing demand, and many vary the demand rate by season or restrict it to an on-peak window, so read your tariff sheet before assuming a lower peak translates straight into a lower bill. Second, the value of a fix depends entirely on the demand rate. The National Renewable Energy Laboratory work that surveyed over 10,000 tariffs found rates from under $5 to over $50 per kW, and identified roughly $15 per kW as the level above which peak-shaving storage starts to pencil out.

Frequently asked questions