Understanding Demand Charges for Commercial Energy Users: Minimizing Peak Spikes

You open your monthly commercial electricity bill expecting the usual amount, but something catches your eye: a line item called "demand charges" that accounts for nearly 40% of your total bill. You used roughly the same amount of electricity as last month, yet this mysterious charge has inflated your costs by hundreds of dollars. What happened? The answer lies in a single 15-minute window when your business drew maximum power from the grid—and now you're paying for it all month long.

For commercial energy users in Illinois and across deregulated markets, demand charges represent one of the most misunderstood yet controllable components of the electricity bill. This comprehensive guide will demystify how ComEd and Ameren calculate peak demand, reveal the hidden costs that are silently inflating your commercial energy bill, and provide five actionable strategies to slash your peak demand and reduce demand charges by 15-30% or more.

The Hidden Fee Inflating Your Commercial Energy Bill

Demand charges are fundamentally different from the kilowatt-hour (kWh) charges most business owners are familiar with. While kWh charges measure the total amount of electricity you consume over time, demand charges measure the rate at which you consume electricity—specifically, the highest rate recorded during any billing period.

Think of it this way: kWh charges are like paying for the total gallons of water that flow through your faucet in a month. Demand charges are like paying for the maximum pressure your faucet ever reached, even if that maximum only lasted for 15 minutes.

Why Do Utilities Charge for Peak Demand?

Utilities justify demand charges based on infrastructure costs. The electrical grid—including transformers, substations, transmission lines, and distribution networks—must be sized to handle the maximum load that customers might draw at any given moment. When your business suddenly requires 100 kW instead of its usual 50 kW, the utility must maintain enough infrastructure capacity to meet that peak demand, even if it only occurs once per month.

According to the U.S. Energy Information Administration, commercial and industrial customers account for approximately 63% of total U.S. electricity consumption. Because these customers can create significant demand spikes, utilities use demand charges to recover the fixed costs of maintaining grid infrastructure and to incentivize businesses to flatten their load profiles.

The Real-World Impact on Illinois Businesses

For a typical medium-sized commercial facility in Illinois, demand charges can represent anywhere from 30% to 50% of the total electricity bill. A manufacturing plant with a peak demand of 500 kW paying $15 per kW faces monthly demand charges of $7,500—before consuming a single kilowatt-hour of actual energy. Over a year, that translates to $90,000 in demand charges alone.

The situation becomes even more challenging when you consider demand ratchets. Many commercial rate schedules include provisions that set your minimum billable demand at 80-90% of your highest peak demand from the previous 11 months. This means a single demand spike in July can inflate your bills for an entire year, even during low-usage winter months.

How ComEd and Ameren Calculate Peak Demand

Understanding exactly how your utility calculates demand charges is the first step toward controlling them. Both ComEd (serving northern Illinois including Chicago) and Ameren (serving central and southern Illinois) use similar methodologies, though the specific rates and time periods may vary.

The 15-Minute Interval System

Both utilities use interval meters that record your electricity consumption in 15-minute increments throughout the billing period. Your demand (measured in kilowatts, or kW) for each interval is calculated by dividing the total energy consumed during that 15 minutes by 0.25 hours.

Demand (kW) = Energy consumed in 15 minutes (kWh) ÷ 0.25 hours

For example, if your facility consumes 25 kWh during a particular 15-minute interval, your demand for that period is 25 ÷ 0.25 = 100 kW. The highest 15-minute demand recorded during the entire billing period becomes your "peak demand" for that month.

ComEd Demand Charges Explained

ComEd commercial rates typically include both a distribution demand charge and, for larger customers, a capacity demand charge. The distribution demand charge covers the local infrastructure costs of delivering electricity to your facility. The capacity demand charge reflects the cost of ensuring adequate generation capacity is available during peak periods.

ComEd also employs time-of-use demand pricing for many commercial rate classes. Peak demand periods (typically 9 AM to 9 PM on weekdays) carry higher demand rates than off-peak periods. This means a 100 kW spike at 2 PM costs significantly more than the same spike at 10 PM.

Ameren Demand Charges Explained

Ameren Illinois structures its commercial demand charges somewhat differently. Rate schedules like DS-3 (Medium General Delivery Service) and DS-4 (Large General Delivery Service) include demand charges that vary based on total monthly usage and the customer's peak demand level.

Ameren also distinguishes between "billing demand" and "actual demand." The billing demand may be adjusted based on power factor penalties (which we'll discuss later) and demand ratchets that reference historical peak demands.

Understanding Your Load Profile

Both ComEd and Ameren provide commercial customers access to their interval data through online portals. This data is invaluable for understanding when your peak demands occur and identifying opportunities for reduction. You can request a 12-month interval data history, which will reveal patterns such as:

• Time of day when peaks typically occur
• Day of week patterns (weekday vs. weekend)
• Seasonal variations in demand
• Correlation between specific equipment startup and demand spikes
• Impact of production schedules on peak demand

5 Strategies to Slash Peak Demand and Reduce Demand Charges

Armed with an understanding of how demand charges work, let's explore five proven strategies that Illinois businesses are using to dramatically reduce their peak demand and lower their commercial energy bills.

Strategy 1: Load Shifting and Staggered Equipment Startup

The most common cause of unnecessary peak demand is the simultaneous startup of multiple pieces of equipment. When your facility powers up at 8 AM and every HVAC unit, production line, and piece of office equipment starts simultaneously, you create an artificial demand spike that sets your billing demand for the entire month.

Implementation Steps:

• Audit startup sequences: Document the startup times and power draw of all major equipment. Identify which items can be delayed by 10-15 minutes without impacting operations.
• Create a staged startup schedule: Program HVAC systems to start 30 minutes before opening. Delay production equipment startup by 15-minute intervals. Stagger the activation of lighting zones.
• Install demand controllers: These devices automatically sequence equipment startup and can prevent multiple high-draw items from operating simultaneously.
• Pre-cool or pre-heat: Run HVAC systems before peak demand periods to reduce the load during expensive hours.

Potential Savings: 10-25% reduction in peak demand. For a business with a 200 kW peak paying $12/kW, this could mean $240-$600 in monthly savings, or $2,880-$7,200 annually.

Strategy 2: Demand Response Program Participation

Demand response programs offer commercial customers payments or bill credits in exchange for reducing electricity consumption during grid stress events. Both ComEd and Ameren offer various demand response programs, and participation can significantly offset demand charges.

ComEd Demand Response Programs:

• Peak Time Savings: Customers receive bill credits for reducing usage during peak events (typically 10-15 events per summer)
• Hourly Pricing: Access to real-time pricing that allows you to curtail when prices spike
• Third-party aggregator programs: Work with demand response aggregators who combine multiple facilities' load reduction capabilities

According to the PJM Interconnection, demand response participants in the regional grid can earn significant capacity payments for committing to reduce load during emergencies. Illinois businesses participating in PJM demand response programs have earned $50-$200 per kW annually.

Potential Savings: $5,000-$50,000+ annually depending on facility size and curtailment capability.

Strategy 3: Energy Storage for Peak Shaving

Battery energy storage systems (BESS) have emerged as one of the most effective technologies for reducing demand charges. These systems store electricity during low-demand periods (often at night when rates are lower) and discharge during peak demand periods to reduce the power drawn from the grid.

How Peak Shaving Works:

• The battery system monitors real-time facility demand using interval meters
• When demand approaches a preset threshold, the battery begins discharging to supplement grid power
• The facility's net demand from the utility stays below the threshold
• The battery recharges during off-peak hours when demand and rates are lower

Economics of Battery Storage:

A commercial battery system capable of peak shaving typically costs $400-$800 per kWh of capacity. For a facility looking to shave 50 kW of peak demand for 2 hours, a 100 kWh battery system might cost $50,000-$80,000. With demand charge savings of $600-$900 per month, the payback period ranges from 5-10 years—and system life is typically 15-20 years.

Federal tax credits under the Inflation Reduction Act can offset 30-50% of battery system costs, dramatically improving ROI. Illinois also offers additional incentives through the Illinois Solar for All program and the Adjustable Block Program for commercial solar+storage installations.

Potential Savings: 20-40% reduction in demand charges, plus additional savings from time-of-use rate arbitrage.

Strategy 4: Power Factor Correction

Power factor is a measure of how efficiently your facility uses electrical power. A power factor of 1.0 (or 100%) means all the power delivered to your facility is being used productively. A lower power factor means some power is being wasted as "reactive power" that doesn't perform useful work.

Both ComEd and Ameren penalize customers with low power factors by adjusting their billing demand upward. The typical threshold is 0.85-0.90. If your power factor falls below this threshold, your billing demand may be increased proportionally, directly inflating your demand charges.

Common Causes of Low Power Factor:

• Induction motors running at partial load
• Variable frequency drives (VFDs) without harmonic filters
• Fluorescent and HID lighting with magnetic ballasts
• Welding equipment and arc furnaces
• Oversized or lightly loaded transformers

Correction Solutions:

• Capacitor banks: Install power factor correction capacitors sized to your facility's reactive power needs. Automatic switching systems can adjust capacitance as loads change.
• Synchronous condensers: For very large facilities, synchronous motors can provide dynamic power factor correction.
• Equipment upgrades: Replace magnetic ballasts with electronic ballasts, add harmonic filters to VFDs, and right-size motors for their loads.

Potential Savings: If your current power factor is 0.75 and you improve it to 0.95, your billing demand could decrease by 20%. For a facility with 500 kW measured demand, this represents a 100 kW reduction in billing demand—potentially worth $1,200-$1,500 per month.

Strategy 5: Intelligent Building Management Systems

Modern building management systems (BMS) and energy management systems (EMS) can automatically monitor and control demand in real-time. These systems go beyond simple scheduling to provide dynamic load management based on actual conditions.

Key BMS Features for Demand Management:

• Real-time demand monitoring: Continuous tracking of facility demand with alerts when approaching thresholds
• Automated load shedding: Automatic reduction of non-critical loads when demand spikes threaten to set new peaks
• Predictive controls: AI-powered systems that anticipate demand spikes and proactively adjust operations
• Integration with utility signals: Automatic response to demand response events or time-of-use rate changes
• Historical analysis: Pattern recognition to identify systematic demand issues and optimization opportunities

Implementation Considerations:

A comprehensive BMS/EMS implementation can cost $50,000-$200,000 for a medium-sized commercial facility, but the combined savings from demand reduction, energy efficiency, and operational optimization typically deliver payback periods of 2-4 years.

Potential Savings: 15-30% reduction in demand charges, plus 10-20% reduction in overall energy consumption.

Partnering with Energy Experts for Maximum Savings

While the strategies outlined above can be implemented independently, many Illinois businesses are finding that partnering with energy consultants and procurement experts maximizes their savings potential. Here's how professional guidance can amplify your demand charge reduction efforts.

Comprehensive Energy Audits

A professional energy audit goes beyond simple utility bill analysis. Certified energy managers will install temporary monitoring equipment to capture detailed load profiles, identify inefficient equipment, and quantify savings opportunities. The investment in a Level II or Level III energy audit (typically $5,000-$25,000 depending on facility size) often identifies $50,000-$200,000 in annual savings potential.

Rate Schedule Optimization

Both ComEd and Ameren offer multiple commercial rate schedules, and the optimal choice depends on your specific load profile. An energy consultant can analyze your interval data and model your costs under different rate options to ensure you're on the most advantageous tariff. Sometimes a simple rate change can reduce costs by 5-10% with no operational changes required.

Competitive Energy Procurement

In Illinois' deregulated energy market, commercial customers can choose their electricity supplier while still receiving delivery service from ComEd or Ameren. This separation of supply and delivery means you can shop for competitive supply rates while implementing demand reduction strategies to lower your delivery demand charges.

For more information on navigating Illinois' competitive energy market, see our comprehensive guide to Illinois Energy Choice.

Ongoing Demand Monitoring

Demand management is not a one-time project but an ongoing process. Changes in production schedules, equipment additions, weather patterns, and utility rate structures all affect your demand profile. Many businesses benefit from monthly demand analysis services that track performance against benchmarks and identify emerging issues before they impact bills.

Taking Action: Your Demand Charge Reduction Roadmap

Reducing demand charges requires a systematic approach. Here's a step-by-step roadmap to guide your efforts:

Month 1-2: Assessment

• Request 12 months of interval data from your utility
• Analyze when and how your peak demands occur
• Calculate the percentage of your bill attributable to demand charges
• Identify your largest loads and their operating schedules

Month 3-4: Quick Wins

• Implement staggered startup procedures for major equipment
• Verify you're on the optimal rate schedule
• Check power factor and schedule correction if below 0.90
• Enroll in applicable demand response programs

Month 5-12: Strategic Investments

• Evaluate battery storage or other peak shaving technologies
• Upgrade to intelligent building management systems
• Consider equipment upgrades that reduce peak power draw
• Implement continuous monitoring and optimization