what is demand charges in electricity bill

Demand charges are fees applied to the electric bills of commercial and industrial customers based upon the highest amount of power drawn during a specific period of time. They are based on the highest level of electricity demanded at one time during the billing period and at the time of day it’s needed by the business. Demand charges represent the high costs that electric companies pay for generating and transmission capacity that sits idle most of the time. They are calculated on top of baseline and energy or usage charges. Demand intervals are usually 15 or 30 minutes, and the demand charge is based on the amount of energy consumed in that specified period of time. Demand charges appear as two separate charges on the bill: power supply on-peak demand charge and delivery customer maximum demand charge. The only way to decrease the electric bill is to use less power all at once because the demand charge is set based on the maximum hourly power requirement.