Are residential demand charges the next big thing in electric rates?
Demand charges for commercial and industrial customers long have been a part of the electric industry. As utilities need to build infrastructure to meet both instantaneous and long-term requirements, the utility bill contains both an energy charge, which measures the amount of electricity a customer uses over time, and a demand charge, which measures how much power is used at any given point in time.
However, residential customers are rarely subject to a bill with a demand charge. This is because, until recently, residential electricity loads were pretty much the same from one customer to the next. We all (more or less) woke up, took a shower, went to work, came home, turned on the lights, cooked dinner, watched TV, did a load of laundry, went to bed. Utilities and regulators could lump energy and demand elements together into one $/kWh price.
Today, this assumption is no longer true. Not all residential customers are the same. We now have access to LED lights, smart thermostats, plug-in electric vehicles, rooftop solar, demand-flexible water heaters, battery energy storage and myriad other technologies that make our respective loads and our consumption patterns potentially very different.