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Demand charges, explained for building owners.

On a commercial meter, the biggest line on the bill is often not the energy you used. It is the rate at which you used it, for one half-hour, once. Here is how that works, on a real NYC bill.

Last verified: 2026-07-18

What a demand charge is

A commercial electric bill has two meters running at once. One counts energy: total kilowatt-hours, the quantity you used. The other watches demand: how fast you were drawing power, in kilowatts, averaged over each 30-minute window. Con Ed bills demand on the highest 30-minute integrated demand recorded in the month (Con Ed General Rule 10.4). Whatever your worst half-hour was, you pay for that peak at a per-kilowatt rate, on top of every kilowatt-hour.

The 30-minute averaging matters. A momentary spike, a compressor starting, averages down over half an hour and mostly disappears. What sets the charge is sustained draw: equipment that runs hard for a full half-hour. Equipment degradation is sustained by nature, which is exactly why it shows up here.

A real bill, opened up

Here is an actual NYC commercial Con Ed account we analyzed, on rate EL9 (General Large), over a 32-day summer billing period. The account details are anonymized; the numbers are verbatim.

LineValue
Energy used3,003 kWh
Total bill$2,084.64
Peak demand recorded22.08 kW
Demand-related share of the bill~70%
Largest single line (demand delivery)$1,077.51
All-in demand rate$65.79 / kW-month
Effective cost per kWh$0.694
Load factor18%

Read that again: 3,003 kilowatt-hours cost $2,084.64. The energy alone would have been roughly $0.11 per kWh. The demand charge pushed the effective rate to $0.694 per kWh, about six times the energy price. The single largest line on the bill, $1,077.51, was demand delivery, 52% of the entire bill, paid for 22.08 kilowatts of peak.

The 18% load factor tells you why. Load factor is average demand divided by peak demand (there is a fuller definition in the glossary). A spiky, HVAC-driven load runs low all day and then peaks hard, so it sets a high demand charge while using little energy. That is the profile of most cooling-dominated commercial buildings.

Why degraded equipment pays the charge twice

A fouled condenser coil, a slow refrigerant leak, or a clogged filter all do the same thing electrically: the compressor draws more amps to deliver the same cooling. On a demand-billed meter that one fault hits the bill in two places:

  • More kilowatt-hours. The unit runs longer and draws more, so the energy line rises with the waste.
  • A higher peak.The same excess draw is present during the building's worst half-hour, so the demand line rises too, and it rises every month the degraded unit helps set the peak, not just in cooling season.

This is why maintenance is worth more on a commercial meter than a residential one. A homeowner pays for the wasted energy. A demand-billed building pays for the wasted energy and then pays demand rates on the degraded peak, twelve times a year.

What one kilowatt of peak costs

On Con Ed's SC9 large commercial rate, the demand charge is $44.05 per kW per month in summer (June through September) and $34.50 per kW per month the rest of the year. One kilowatt of peak, present all twelve months, is about $452 a year at those tariff rates. On the real EL9 bill above, where the all-in demand rate was $65.79 per kW-month, the same year-round kilowatt costs about $789 a year. So every kilowatt a degraded unit adds to the peak, and every kilowatt a fix removes, is worth roughly $452 to $789 per year in demand charges alone, before any energy savings.

What owners can do about it

The demand charge is set by a sustained half-hour, which means it can be managed, not just paid:

  • Fix the equipment that draws excess current. The faults are documented: the Department of Energy puts a clogged filter at 5 to 15% of an AC's energy use, and a 13,000-unit ACEEE field study put improper refrigerant charge at 10 to 20% of unit efficiency. Correcting them lowers both the energy line and the amp draw behind the peak. (More in What a dirty filter actually costs you.)
  • Stagger starts and shed discretionary load. Because the peak is a 30-minute average, moving equipment starts apart in time lowers the peak without changing total use.
  • See the peak forming. Visibility alone is worth money here. If staff can see that the building is about to set a new monthly peak, they can delay a start or shed a load in the half-hour that matters, and shave the kilowatts that would have billed for the whole month. This is one reason continuous per-unit monitoring pays on a demand-billed meter even before any repair happens.

If you run a commercial building, this is usually the sharpest money argument for watching your equipment, ahead of energy waste and well ahead of comfort. The buildings page walks the whole stack, and pricing shows how the subscription compares to the savings.

Common questions

What is a demand charge?

A demand charge is the part of a commercial electric bill priced on your peak rate of use, in kilowatts, rather than your total use in kilowatt-hours. Con Ed bills it on the highest 30-minute integrated demand recorded in the month (Con Ed General Rule 10.4). One high half-hour sets the charge for the whole billing period.

How much of a commercial bill is demand?

It varies with the rate class and how spiky the load is. On a real NYC commercial Con Ed bill we analyzed (rate EL9, a summer period), demand-related charges were about 70% of the total bill. On Con Ed's SC9 large commercial rate, the demand charge is $44.05 per kW per month in summer (June to September) and $34.50 per kW per month the rest of the year, before supply-side demand components.

Why does degraded HVAC equipment raise a demand charge?

A fouled coil or a low refrigerant charge makes the compressor draw more power for the same cooling. That raises both total kilowatt-hours and the peak kilowatts, so the same fault is billed twice: once on the energy line and again on the demand line, every month the degraded unit helps set the peak.

Can you reduce a demand charge without replacing equipment?

Often, yes. Because the charge is set by a sustained 30-minute peak, staggering equipment starts, shedding a discretionary load, or fixing a unit that draws excess current can shave the peak that sets the bill. The first requirement is visibility: you have to see the peak forming while there is still time to act on it.

Sources

See your peak forming before it bills you.

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