Typical energy consumption reduction measures will reduce the largest part of your power bill – the total kWh used – but won’t necessarily have a material effect on the 2nd largest part of your bill – your Capacity charge – which can represent 20-30% of many commercial customers’ bills.

The Capacity Charge: Electric Utilities charge every user a Capacity charge to cover the cost of maintaining adequate capacity to supply them at their maximum consumption rate. This charge is calculated by multiplying the user’s Peak Load Contribution (PLC) – previously known as the Peak Demand Charge – by the published Capacity Rate in your area.

How it’s calculated: Today, in most grids, the grid operator identifies the 5 highest hours of peak load on the entire grid – usually between 3:00 and 5:00pm on hot Summer afternoons between July and September. Then they look at each user’s consumption during those 5 hours and allocate a Peak Load Contribution number in KW. Your PLC is measured in KW rather than kWh because it represents the maximum amount of power you need delivered by the utility at a moment in time. Once the PLC is allocated, every monthly bill for the following year contains a Capacity charge.

What can you do about it? It’s hard, but not impossible, to predict when those 5 hours will be, because the grid operators give warning of anticipated peak days –usually the day before a peak is expected and again the morning of the day one is expected. This allows you to ‘manage’ (i.e. reduce) your PLC, which will lower your bill every month the following year and possibly longer*

Does it Pay to Reduce your PLC? Technically, if you lower your PLC during the Summer of Year 1, you will reap the benefit in Year 2. (The Capacity year is from June till May). In practice, however, if you sign a fixed price contract for 24 or 36 months, the supplier will use your 1st year PLC to calculate the fixed price for all three years. So, if your PLC rises in years 2 or 3, that increase is not reflected in your fixed price contract. If you think your PLC will fall, however, you shouldn’t buy a longer-term contract because you want the 2nd and 3rd years to reflect your lower PLC.

How can you tackle it? The goal, obviously, is to lower your consumption during those 5 critical hours. To be reasonably certain you’ll hit all 5 peak hours, you’ll probably have to aim for 10 hot afternoons when you’ll plan to lower your consumption as much as possible.

What is actually possible will depend on your business and how well you understand the equipment you operate and its load profiles. Fortunately, it’s both cheap and easy these days to monitor the energy consumption of your larger pieces of equipment.