Demand charges
Electricity bills for small business utility consumers may have different charges than residential electricity bills. These charges can include energy usage, delivery, and demand.
Depending on how electricity is used, two businesses in the same service area can have the same electricity rate and use the same amount of electricity but have different utility bills because they have different demand levels.
If a small business uses power consistently throughout the month, the demand will be lower. If the business tends to use a lot of electricity over a short period, the demand will be higher.
Companies that use larger amounts of electricity will see demand charges on their bills based on the highest amount of power (kilowatt or kilovolt-ampere) needed at a given point in time.
For example:
There are two companies that both consumed 50,000 kWh of electricity in one month. Company A used a consistent amount of electricity every day and every hour, while Company B had short bursts where it consumed 10,000 kWh of electricity within 15-minute intervals. Company B’s bill will likely be higher due to higher demand charges from requiring large amounts of energy in short bursts.
How demand charges are set
Distribution companies set demand charges in their Distribution Access Service Tariffs, which are reviewed and approved as part of other delivery charges by the Alberta Utilities Commission (AUC). Although demand charges mostly apply to industrial utility consumers, they may also be relevant to small businesses in some distribution service areas.
A consumer’s distribution company is determined by their location in the province, so if a small business is in an area where demand charges apply, changing retailers will not impact demand charges.
Demand meters
Electricity distributors use demand meters to record the maximum amount of power a business draws for any given time interval (typically 15 minutes) during the billing period. This is the highest metered demand, and the distribution company calculates the demand charges on an electricity bill by multiplying the highest metered demand value (kW) by the relevant demand charge ($/kW).
Highest metered demand and billing demand
The highest metered demand may not be the billing demand used. Billing demand varies from distributor to distributor. It is important to check with your distribution company to see how your billing demand is set.
In the FortisAlberta service area, the system usage charge is based on the Highest Metered Demand in the billing period. However, the transmission capacity charge and local facilities charge use the Capacity Charge which is determined by the highest recorded kW demand based on different criteria:
- The highest metered kW demand in the billing period, same as above
- The Minimum Contracted Demand with the distribution company
- The Rate Minimum of 3 kW
Additionally, some rates also include billing demand based upon historical demand, called Ratchet Demand. For example, if last summer’s highest metered demand was 50 kW and the rate design has an 85% ratchet, the billing demand would be 42.5 kW (50 kW times 85%) for the following eleven months, regardless of the actual demand. The billing demand will be the highest of any of these criteria.
ATCO Electric follows a similar approach, except it uses the highest of the criteria above for the transmission, distribution, and service charges, and its rate minimum is 5 kW.
ENMAX Power Corporation and EPCOR Distribution & Transmission Inc. do not have demand charges for small business customers.
Another factor to consider is seasonality. Higher recorded demand typically occurs during winter and summer for heating and cooling, raising demand charges even if overall usage is lower. If a distribution company uses Ratchet Demand, the peak demand during these high-use months may become the billing demand.
Why distributors apply demand charges
Distributors build infrastructure to maintain enough capacity to meet a business’ highest demand needs at any time. Even if a business only needs a large amount of power for a short amount of time during any given year, the distributor must have the equipment (power poles, powerlines, substations, and transformers) to provide that power. The demand charge pays for building and maintaining this essential electrical infrastructure.
