Sometimes it seems like your electric bill is designed to make it hard for you to know how it is calculated. With charges for generation, transmission, transition, distribution, demand, energy efficiency, renewable energy, and just for being a customer, you might think that you just aren’t supposed to understand it. However, almost all the charges on your bill can be categorized in either of two ways: an energy charge or a demand charge.

Typically, the largest charge on your bill will be for the cost of energy and is expressed as $/kilowatt-hour ($/kWh).  A kWh (1000 watt-hours) is the amount of energy consumed by something that uses a kilowatt (kW) of power for one hour, or uses 100 watts for 10 hours.  It varies in direct proportion to the amount of fuel that is burned in a coal-fired or natural gas generating plant, the water pumped in a hydro system, wind passing through a wind turbine, or sunshine absorbed by a photovoltaic solar system. A kWh of energy is the same whether it comes from a huge generating plant operating for a brief period of time or a tiny source of electricity working for a long time.

A demand charge is expressed in $/kilowatt ($/kW) and varies in proportion with the power of the plant or system supplying the energy.  The energy grid generally does not have storage.  This means that there needs to be enough power (kW) available at any given time for all of the people using electricity at that moment.  There is a cost to the utility associated with just having the generating, distribution, and transmission facilities and equipment available to its customers whenever they might need them, even if they are hardly ever used. If you have a large electrical load that only occurs for 15 minutes every month, and it therefore doesn’t consume much energy, the utility needs to recoup its investment by charging you for the power they have made available and not or the energy you have used.

When you make energy efficiency upgrades to your refrigeration equipment, you are likely to save on your electric bills from both energy and demand charges. When efficient electronically commutated motors (ECMs) replace old shaded pole motors in your evaporator fan units in your walk-in cooler, you will save on demand because less electrical power needs to be supplied to operate them. You will also save on energy charges because the ECMs will consume less energy over the course of the month.  Shutting your evaporator fans off when they are not needed also reduces the energy (kWh) used.  However, it wont necessarily reduce the demand (kW) to the full extent because the evaporator and compressor may happen to be on when the utility records the peak demand.