What is a demand charge?

A demand charge is a fee that utilities impose based on the maximum amount of electricity that a customer uses during peak demand times. This charge is intended to reflect the utility's costs for providing capacity to meet the highest levels of demand on their system. During peak hours, the demand for electricity can significantly increase, and the utility needs to ensure that they have enough resources to supply this demand.

By charging for demand, companies incentivize customers to manage their peak consumption more effectively. This can lead to strategies that reduce energy use during peak periods, helping to alleviate strain on the energy grid and potentially lowering overall energy costs for consumers. In contrast, other options focus on aspects of electricity use or costs that do not specifically pertain to the demand charge, such as charges for off-peak usage or penalties for excessive consumption.