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Charge Without a Cause? Assessing Electric Utility Demand Charges on Small Consumers

Charge Without a Cause? Assessing Electric Utility Demand Charges on Small Consumers

Full Title:  Charge Without a Cause? Assessing Electric Utility Demand Charges on Small Consumers
Author(s):  Paul Chernick, John T. Colgan, Rick Gilliam, Douglas Jester, Mark LeBel
Publisher(s): Solar Energy Industries Association
Publication Date: July 1, 2016
Full Text: Download Resource
Description (excerpt):

There has been significant recent attention to the possibility of including demand charges in the electricity rates charged to residents and small businesses. Electric utilities have historically served these ‘small customers’ under a two-part rate structure comprised of a fixed monthly customer charge that recovers the cost of connecting to the grid and an energy charge (or charges) that recover all other costs. Much of this attention to the issue of demand charges for small customers has been initiated by electric utilities reacting to actual or potential reductions in sales, revenue and cost recovery.

Demand charges are widely familiar to large, commercial and industrial customers, where they are used to base some portion of these customers’ bills on their maximum rate of consumption. While a customer charge imposes the same monthly cost for every customer in a rate class, and an energy charge usually imposes the same cost per unit of energy used over a long period of time (e.g. the entire year, a month, or all weekday summer afternoons), most demand charges impose a cost based on usage in a very short period of time, such as 15 minutes or one hour per month. The timing of the specific single maximum demand event in a month that will result in demand charges is generally not known in advance.

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