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Demand Pricing

What is demand?

"Demand" is the total amount of electricity being used by a consumer at any one time. Electric demand (measured in kilowatts, or kW) is the rate at which electricity is used. A demand meter measures your highest average demand for any 15-minute period during the billing month. This type of meter is somewhat like a speedometer, since it registers how fast you use electricity. The dial stays at the highest average point during the billing month. Demand meters also measure energy use (kWh). This is the amount of electricity used during the month. This measurement is like the odometer on your car, telling you the number of miles traveled.

To understand how demand is measured, see our additional examples.

Why is demand metered?

Two classes of expenses determine the total cost of generating, transmitting, and distributing electric energy. First, capital investment items: depreciation, interest on notes, property taxes, and other annual expenses arising from the electric utility’s capital investment in generating, transmitting, and distribution facilities, and for land or buildings. Second, operation and maintenance items: payroll, workman’s compensation, fuel, renewal parts, rent for office space, and numerous other items contributing to the cost of operating, maintaining, and administering a power system.


In billing the individual consumer for electricity, the utility considers the total cost of supplying service to that customer. This is determined by capital investment determined by operation and maintenance expenses. Furnishing power to some customers calls for a large capital investment by the utility. With other customers, the cost may be due largely to operation and maintenance. The following two examples illustrate these two extremes of load:

  1. A customer has a 1 kW (one thousand watts) load, also refered to as demand. This would be equivalent to ten one hundred watt light bulbs. If he uses this load during the entire 24 hour period, he will accumulate 24 kilowatt hours (1 kW x 24 hrs = 24 kWhs). The 24 kWhs represent the energy used by this customer.
  2. Another customer has a different load requirement. He turns on all of his equipment at once and has a load of 24 kW. This would be equivalent to 240 one hundred watt light bulbs. If he only uses his equipment for one hour and has no load for the remaining 23 hours of the 24 hour comparison period, he will also use 24 kilowatt hours (24 kW x 1 hr = 24 kWhs).

If a utility bills these two customers for their energy use alone, they will both receive a bill for the same amount. However, customer number two’s demand for energy over a short duration of time was much greater. Therefore, the utility must install much larger equipment (transformers, wire, generator capacity, etc.) to handle this short term demand for energy. The only fair way to bill these customers for the cost to serve their respective loads is to have a separate energy (kWh) and demand charge (kW).

At IPL, special meters are used for all commercial or industrial accounts with usage greater than 20,000 kWh each month. These meters are capable of recording the energy and the demand. Therefore, each customer may be fairly billed for the actual cost to serve their respective loads.

Demand is an indication of the capacity of equipment required to furnish electricity to the individual consumer. The number of kWh per month gives no indication of the rating of equipment the utility must install to furnish a particular maximum power requirement during the month without overheating or otherwise straining its facilities. What is needed in this case is a measure of maximum demand for power during the month. The demand meter answers this need.

What does a customer need to know?

The customer needs to understand its load. Customers should monitor and plan their loads to keep their maximum. Some simple questions that may result in lower demand:

  • What energy-efficient improvements can be made?
  • Does all of the equipment need to be running at the same time?
  • If not, what can be turned off while other equipment is running?
  • During summer months, ensure the process is necessary to be run.