Are TDU Ratchet Charges Driving You Mad this March?

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We’re here to ease your March madness by taking a closer look at demand and what you need to know about ratchet charges to make your life easier. You pay your electricity bill every month, but do you spend time examining the Transmission and Distribution Utilities (TDU) charges line item? On average, these regulatory charges can account for 30% to 60% of your bill. Here’s some helpful information that will make it easier to understand these charges.

Let’s take a look at demand. Demand is the rate at which electricity is used at any instant or averaged over any designated period of time. It is measured in kilowatts (kW). Some TDUs charge Kilovolt-ampere (kVA) instead of kW. The demand kW is measured by the electric meter as the highest average demand in any 15-minute period during the billing cycle. This is the amount of electric load required by the customer’s electric equipment operating at any given time. The demand is reset every billing cycle.

The demand charge is a billing mechanism used to recover the cost of providing transmission and distribution service to business customers with a maximum load of greater than 10 kW.

Here’s an easy way to think about how demand and consumption relate.  A car’s speedometer is like the demand meter and the odometer is like a consumption meter.  Two cars could travel the same 100-mile road, one at 10 mph for 10 hours and the other at 100 mph for 1 hour. It takes a much more capable and expensive engine to power the car at 100 mph than it does to power the one going only 10 mph.

Just like those cars in our example, a utility system capable of delivering 100 kW is more expensive than the 10 kW systems. The TDU recovers the cost for the capital and maintenance for these systems through the demand charges. To ensure they recover their costs, the TDU uses a ratchet to determine billing demand. This ratchet is the determination of billing demand based on your past history. Your actual demand will be ratcheted up if your monthly actual demand is less than 80% of the highest demand in the past 11 months.

We hope this give you a better understanding of your TDU ratchet charges. Next month we’ll tell you how you can reduce demand and ratchet charges.