Demand Charges Explained for Ohio Businesses
The short answer
A demand charge bills the highest rate at which you used electricity during the month — measured in kilowatts (kW), usually as the highest 15- or 30-minute average — rather than the total energy you used (kWh). Two businesses can use the same kWh and pay very different bills if one of them runs everything at once. In Ohio, demand charges show up on the delivery side of most business rate schedules, so they apply no matter which supplier you choose.
This page explains what demand is and how it's billed. For tactics to lower it, see how to cut peak demand charges. For the separate, once-a-year capacity tag set during the grid's summer peaks, see capacity tags (PLC) explained.
kWh vs kW in one example
| Site A | Site B | |
|---|---|---|
| Monthly energy | 30,000 kWh | 30,000 kWh |
| Hours of operation | 20 hours a day, steady | 8 hours a day, everything on at 7 a.m. |
| Peak demand | about 50 kW | about 125 kW |
| Load factor (average ÷ peak) | about 83% | about 33% |
Both sites pay the same energy charges. Site B pays demand charges on 2.5 times as many kW, and because suppliers also price peaky loads higher, it usually gets a higher generation price per kWh too.
How Ohio utilities measure and bill demand
- Measurement interval. Utility meters record demand as an average over a short interval (commonly 15 or 30 minutes, set by the tariff). A one-minute spike matters less than a sustained 15-minute peak.
- Billing demand. The highest interval in the billing month, sometimes adjusted for power factor or subject to a minimum.
- Ratchets. Some schedules set billing demand at the greater of this month's peak or a percentage of a recent high peak, so a single bad month can follow you for up to a year. Check your tariff for "ratchet" or "minimum billing demand."
- Small accounts. The smallest commercial schedules may bill only energy (kWh). Once a site crosses a usage or demand threshold it moves to a demand-billed schedule — the tariff sets the threshold.
Your rate schedule (GS-1, GS-2, DM, DS, GS, GP, etc.) is printed on the bill; the utility's tariff book shows exactly how demand is calculated for it.
Demand charge vs capacity charge
| Demand charge | Capacity (PLC) charge | |
|---|---|---|
| Set by | Your highest interval this month | Your load during PJM's peak hours last summer |
| Appears in | Delivery charges (utility tariff) | Generation price (default or supplier) |
| Resets | Every month (unless ratcheted) | Once a year, each June 1 |
| 2026 driver | Utility rate cases | PJM capacity price: $329.17/MW-day for 2026/27, up from $28.92 in 2024/25 |
Managing one doesn't automatically manage the other: a Sunday peak at a church sets its monthly demand charge but barely touches its capacity tag, because PJM's peaks fall on hot weekday afternoons.
What creates demand peaks
- Starting several large motors, compressors or rooftop units at the same time (morning start-up is the classic culprit).
- Electric heat or cooling catching up after a setback.
- Batch processes — kilns, ovens, welders, induction heaters.
- EV chargers or forklift chargers all starting at shift change.
- Equipment testing, including generators transferring load back to the grid.
FAQ
How is a demand charge calculated on an Ohio business bill?
The utility takes your highest average kW over one demand interval (often 15 or 30 minutes) during the billing month, applies any tariff adjustments, and multiplies it by the per-kW rate in your schedule.
Does switching suppliers change my demand charge?
No. Demand charges are part of delivery, which stays with your utility. A supplier contract can, however, price your generation differently depending on how peaky your load is.
What is a good load factor?
It depends on the business: cold storage and data centers often run above 70–90%, offices around 40–50%, and churches below 20%. The higher it is, the less each kWh costs you on average.
Can one bad day really raise the whole month's bill?
Yes — billing demand is usually the single highest interval in the month, and a ratchet can carry part of it forward.
Sources
- Utility tariffs filed with PUCO: https://puco.ohio.gov/
- PJM capacity results: https://www.pjm.com/markets-and-operations/rpm