Understanding
Electric
Demand
www.psegliny.com
1-800-966-4818
PSEG Long Island LLC and its operating subsidiary have been appointed as agent
by the Long Island Power Authority to provide the day-to-day management and
operations services of its electric utility system.
Printed on Long Island
using recycled paper
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Our Goal is to provide you with
reliable, cost-effective energy. We
also have a responsibility to help you
understand how energy pricing, and
the decisions you make, can affect
your electric bill.
Why is Demand
Charged Separately?
What are Demand Charges?
Since electricity cannot be stored on a large
scale, we must be ready to provide the exact
amount of electricity you and every other
customer needs, at any time, all the time. This
electric “demand” varies by customer, by the
time of day, and by the day of the year. It
requires an electric system built like an eightlane highway to handle peaks in demand that
occur at varying times.
The major differences between homes and
businesses is in the type and amount of
customer equipment and the demand
created. In order to distribute the costs
associated with meeting the larger peak
demand from businesses, utilities create a
separate charge for most commercial
customers.
Demand charges are not shown separately on
bills for most residential and small commercial
customers, but demand costs are built into
their rates.
Demand
Meter
The energy needs from one residential
customer to another do not vary a great deal,
relative to businesses. And the peak electric
demand from residential customers usually
occurs at the same time (i.e. on a very hot
day). That’s why a residential bill has one rate
that includes all costs for delivering electricity.
This is not the case when comparing larger
commercial and industrial customers. The
times electricity is needed, and the amount
needed, vary a great deal. Some customers
need a large amount of electricity almost
constantly, while others need it sporadically.
The fairest way to distribute the cost of electric
demand is to charge based on who is
generating the demand. This results in a
separation of demand and energy charges for
many business customers, which also requires
the use of a demand meter.
Demand vs. Energy
It’s best to use examples when explaining the
difference between demand (kilowatt or kW)
charges and energy consumption (kilowatthour or kWh) charges. One kWh is simply one
kW used for one hour. These examples exclude
other costs, such as the Power Supply Charge,
and assume a demand charge of $9.63 per
kW and an energy charge of $0.0420 per kWh.
In the first example, a building has electrical
equipment with a total maximum power
requirement, or “load,” of 120 kW. Now let's
assume the building is not in use, except that
on the first day of each month all 120 kW of
electrical equipment is turned on for 15
minutes and then completely shut off until the
following month.
How will this affect the electric bill? It would
include high demand, but only 30 kWh of electric
consumption (120 kW x 1/4 hour = 30 kWh):
Example #1
Electric Demand:
120 kW x $9.63
Electric Consumption:
30 kWh x $0.0420
Total Delivery Cost:
$1,156
$1.26
$1,157
In the next example, the same building, with
the same demand, operates 40 hours per
week for four weeks, so monthly electric
consumption increases to 19,200 kWh
(120 kW x 160 hours = 19,200 kWh):
Example #2
$1,156
Electric Demand:
120 kW x $9.63
$806
Electric Consumption:
19,200 kWh x $0.0420
$1,962
Total Delivery Cost:
Example #1: 15 minutes of operation with
a delivery cost of $1,157
Example #2: 160 hours of operation with
a delivery cost of $1,962
These may be extreme examples, but
they show the significant difference
between demand and consumption.
Recording Demand
Demand is measured at 15-minute intervals,
but the demand meter only records the
interval with the highest demand. This is then
used to calculate the demand charges on
your electric bill. It would be like having the
needle on your car’s speedometer record
the highest speed you reach and stay there.
After the meter reader records your monthly
reading, the demand is reset to zero and the
meter begins recording for the next billing
period.
Controlling Demand
It's important to monitor the total demand of
equipment operating at the same time. For
example, if two 60 kW machines were operated together for 15 minutes, your peak demand
would be recorded as 120 kW. However, if you
were to operate one unit only when the other
is off, the maximum demand reading would
only be 60 kW, cutting your demand in half.
Stagger the use of your equipment to
reduce peak demand - it’s not about
when equipment starts up, but how
much is running at the same time.
One way to control demand automatically is
by using an electronic control system that will
monitor and reduce demand. A control system
will often pay for itself in a relatively short
period of time.
Often, a building's demand is created when
several heating, ventilation and cooling (HVAC)
units are required to meet the building's needs.
If the HVAC units are programmed to run at
staggered intervals, instead of running all at
once, demand will be lowered. Also look at
the building itself. Tight construction, good
window design and adequate, but not oversized, ventilation systems all conserve energy.
Smaller equipment can then be installed at
lower costs and with reduced operation and
demand charges. PSEG Long Island's
Commercial Efficiency Program can lower the
cost of installing new, more energy-efficient
equipment that can help you use less energy
and may also reduce demand.
Call 1-800-692-2626 or visit
www.psegliny.com/savemoney.
Ratchets
For medium-size commercial customers (e.g.
Rate 281 or 290), there may be a difference
between the recorded demand taken from the
meter and the demand charges billed.
This is because of a billing formula commonly
used by electric utilities known as a "Demand
Ratchet." Even though a customer may have
inconsistent or seasonal demand, the equipment required to serve that customer must be
maintained year-round to make power available
Did You Know?
Similar to PSEG Long Island and other
electric utilities, there are other serviceoriented industries that have functional
peaks and valleys.
For instance:
n Telecommunications - Because most
people use the phone during the
daytime hours, phone companies offer
lower calling rates in the late evening
and on weekends.
n Transportation - Both railroads and
airlines offer lower priced off-peak
tickets following busy periods like rush
hour or holidays.
n Entertainment - Because most people
entertain in the evening, tickets to
movies and plays are generally more
affordable during afternoon matinee
shows.
whenever the customer needs it. To ensure this
cost is recovered, the Demand Ratchet
creates a minimum demand charge. Here's
how it works:
In the summer months (June - September), the
billed demand is at least 85% of the highest
recorded demand during the preceding 11
months. For example, if a building has a peak
summer demand of 100 kW, the billed demand
for the next summer month will be no less than
85 kW (85% of 100 kW), even if the recorded
demand is below 85 kW.
In the winter months (October - May), the billed
demand will be at least 70% of the maximum
recorded demand during preceding 11 months.
Using the example above, the billed demand for
any winter month would be no less than 70 kW
(70% of 100 kW), even if the recorded demand
falls below 70 kW.
Time-of-Use
For large businesses (e.g. rate 285), the billed
demand is based on the time of day the demand
is created. This is accomplished through the
use of more complex utility equipment, including
a specially-designed demand meter.
Net Metering
Through New York State's Net Metering Law
and the Long Island Power Authority's Tariff for
Electric Service, customers with solar power,
wind power or other qualifying renewable
generating system are entitled to net metering.
A “net meter” has the ability to spin in reverse
when more electricity is being generated than
used.
You are only billed for your “net consumption,”
which is the difference between the amount of
electricity you have used and the amount you
have generated. Even if there are no energy
charges on a monthly bill, it would still include a
basic service charge and the demand charge
based on the highest 15 minutes of demand
required from PSEG Long Island. That's
because a renewable generating system will
not be able to provide 100% of your energy
needs in every 15-minute period of the month.
PSEG Long Island still needs to meet your
electric demand at any time and will charge
you accordingly. This is consistent with New
York State legislation governing net metering
and is consistent with NYS Public Service
Commission policies for regulated utilities.
For more information about net metering,
visit the Renewable Energy section of
www.psegliny.com.
Rate Options
PSEG Long Island offers off-peak pricing rates
to all commercial and industrial customers. For
most customers, time-of-use rates are optional
and you may be able to significantly reduce
your bill if you can shift load to off-peak periods.
We’re Here to Help
Our Business Call Center is available to
address the unique needs of commercial
customers. We'll be happy to provide
additional information about demand
metering or to answer other questions
about your bill. You can reach the
Business Call Center at 1-800-966-4818
(8 AM to 8PM, Monday to Friday).