Skip to main content

Residential Demand Charges; Harpooning Red Herring

By October 17, 2016November 7th, 2021Energy Rant

On the one hand, this article from Utility Dive, The flaws in the utilities’ push for residential demand charges, had me shaking my head left and right in disagreement. On the other, not so much considering Solar City’s[1] Chief Policy Officer co-authored the article.

The article suggests that rather than using demand charges for residential customers, whether they generate renewable energy (solar) or not, utilities should use time-of-use rates instead. Time-of-use rates are a step in the right direction, but demand rates are still more equitable.

Electricity Bills

For new readers, here is a quick overview of various ways utilities charge customers for their service and product, electricity. But this section also serves the purpose of demonstrating how easy concepts are to explain to customers.


Residential rates have conventionally consisted of a flat fixed charge and one flat rate per kilowatt hour of energy used, whenever it is used. Many utilities charge higher rates in summer than winter. These are called seasonal rates.

Non-Residential General Service

Non-residential general service is slightly more sophisticated than residential. It may have tiered or block pricing, which is simply like buying groceries. Larger quantities from price clubs cost less per unit than the corner convenience store.

Non-Residential Large General Service

Large general service rates are the most complicated rates get.

The cost of electricity includes fixed costs and ongoing operating costs. Fixed costs are power plants and power lines to deliver electricity to the customer. Again, comparing to grocery stores, the store and parking lot is like the power plant and power lines. The employees and truckloads of food delivered for sale are operating costs, as are employees, fuel, and maintenance for utilities.

However, unlike grocery stores, electricity cannot be cheaply stored as a grocery store stocks food. Therefore, in peak times, like Sunday before Thanksgiving (peak), grocery prices are the same as Friday after Thanksgiving. Not so for electric prices when temperatures hit triple digits in the Northeast or Midwest on Tuesday, July 17th in the middle of the workweek. Prices soar when reserve capacity approaches zero when the most expensive, least efficient power generation is required, and when no one is really happy to shut down and sweat it out.

Residential and general service rates may have time of use incorporated in them. Large general service rates include the time of use feature.

The Issue

The issue utilities face is how to equitably (fairly) accommodate growing supplies of distributed and grid-connected, solar-generated electricity. Solar advocates want a full retail price for excess home-generated electricity sold back to the grid. However, half the cost of the electricity delivered to customers is fixed, like the cost of the grocery store and parking lot. In a way, solar advocates, like the authors of the article, consider the cost of the store and parking lot as a sunk cost (already paid for). It isn’t that simple.

The most equitable way to accommodate distributed solar is using demand charges, which the authors argue against because demand charges would hit distributed energy generators (customers) with equitable costs. They are equitable costs because their solar power isn’t available when the grid hits its peak, maybe. This is shown in the charts, courtesy of the California Independent System Operator. The first chart represents a Wednesday in mid-July. The second represents last Wednesday, October 12. Note the vertical scales are vastly different with July, having much higher demand. You can see that in California, where distributed solar generation is in the early majority phase of the technology adoption, that non-renewable peak occurs after the sun sets.

The Excuses

Customers Won’t Understand Demand

Customers don’t understand what a kilowatt-hour does for them or what it costs either, except the brilliant people reading this.

The concept is simple. Demand is like the speed you drive and energy is the miles driven. Drive too fast and prepare to get hit with demand charges in the form of speeding tickets.

Demand Charges are Worse than Higher Fixed Charges

Wrong! Raising fixed charges punishes low energy users and especially, those who can’t afford Elon Musk’s solar panels or take advantage of Washington’s lavish tax breaks.

A Single Household’s Peak Usage Doesn’t Affect Grid Cost

Really? Look at the charts above. Peaks in most cases occur after the workday when commercial and industrial buildings are still whirring, and people return to their abodes to do their evening things.

Utility Dive also noted several months ago that only five electric vehicles in one neighborhood can overload a distribution (curb or on a pole) transformer.

One harpoon in this red herring: one of the first non-wire alternative projects bid under New York’s Reforming the Energy Vision (REV) targeted distribution circuits serving only residential and small business customers. The REV framework promotes alternatives to conventional brute force infrastructure upgrades. Residential customers can have dramatic impacts on upgrades for which all customers must pay.

What Customers Want

We are told that customers want control over their energy consumption and what they pay. Millennials don’t want all-you-can-eat energy plans as they like their cellular data plans. Count me in.

It isn’t difficult. Anyone who cares can understand it.

[1] Elon Musk’s solar panel company.

Jeff Ihnen

Author Jeff Ihnen

More posts by Jeff Ihnen

Leave a Reply