Demand charges are a variable cost found on farm electricity bills based on the rate classification.
Why do some utility distributors apply demand charges?
Utility distributors build infrastructure to meet the peak demand for energy. Demand charges pay for building and maintaining this electrical infrastructure including power poles, powerlines, substations, and transformers.
Farm operational demand levels vary depending on the type of equipment used and farm operations. One farm may maintain consistent power usage year-round, while another may consume large amounts of power over shorter periods.
Farms in the same service area with the similar electricity rate and usage can have different utility charges because of energy demand levels.
How demand charges are set
Demand charges are outlined in the distributor's Distribution Access Service Tariffs, which are approved by the Alberta Utilities Commission (AUC). A demand meter is installed on site to record the maximum amount of power a consumer draws during the billing period.
When setting up utility services on a farm, consumers are required to submit an estimated operating demand load, measured in kVA or kWh, to the distributor. This estimate helps determine the appropriate utility infrastructure for the property, like breaker and voltage size, and applicable rate classification. Demand charges are calculated according to each distributor’s specific Distribution Access Service Tariff. For members of a Rural Electrification Association (REA), the tariff is set by the Association’s board of directors.
How demand charges are measured and calculated
Demand meters record the maximum amount of power a farm consumes during a time interval, typically 15 minutes, within a set period. Demand charges are calculated by multiplying the recorded energy consumed, in kVA or kW, by the relevant demand charge rate, in dollars per kW or kVA.
Demand charges vary by distributor, and are calculated based on the greater of:
- The highest metered demand during a time interval
- “Ratchet demand” which calculates the current charge based on previous metered demand
- The contracted rate set between the consumer and distributor
- Rate minimum set by the distributor
Electricity use may change depending on seasonal farm activities and geographic location. If a distribution company uses ratchet demand, the peak demand during these high-use months may become the billing demand for the entire year. Ratchet Demand in Alberta is typically 85% of the highest twelve-month peak of energy used.
