Electric power use is metered in two ways: on maximum kilowatt use during a given time period (i.e., kW demand typically measured in 15-minute intervals) and on total cumulative consumption in kilowatt hours (kWh). A customer’s electric rate is set using a complex process of tracking cost of services and often seeking regulatory approvals.

The general theory is that demand charges reflect the utilities’ fixed costs of providing a given level of power availability to the customer, and energy charges reflect the variable portion of those costs as the customer actually uses that power availability.

Power companies often use a meter that records the power use during either a 15- or 30-minute time window. The average power used during that window is used to calculate the kW demand.

One low-cost method for controlling peak demand charges is a staged start-up: turn on one piece of equipment at a time, create a schedule where the heaviest intensity equipment doesn’t all operate at full capacity simultaneously.