Fixed demand charges are a type of charge that appears on electricity bills. They are designed to recover the basic cost of electric service, independent of how much energy is used. Demand charges are fees applied to the electric bills of commercial and industrial customers based on the highest amount of power drawn during a specific time period. Fixed demand charges are collected from every commercial consumer as per their power usage in the specific time period.
Electricity bills are made up of fixed and variable charges that are combined into a rate that you pay based on your consumption. The fixed charge is designed to recover the basic cost of electric service, while the demand charge shifts the charge on your electric bill from how much electricity you consume over an entire month to the maximum electricity you need at a single point during the month.
Demand charges have historically been used for larger industrial electric customers but are beginning to appear for residential customers. The only way to decrease your electric bill if youre on a demand charge electric rate is to use less power all at once. To offset the increase in the fixed charge portion of your electric bill, the increase in the demand charge is necessarily met with a reduction in the volumetric rate, meaning consumption will be billed at a much lower rate than on a typical residential electric bill.
