Are You Overpaying on Demand Charges? 6 Warning Signs

Most federal facilities waste $300K–$800K annually on inflated demand charges. Here’s how to tell if you’re one of them.

Your monthly utility bill shows a demand charge. You pay it. It seems fixed.

But demand charges are based on your facility’s peak usage during a single 15-minute window each month. And that peak is often caused by problems you don’t even know exist.

Standard utility meters can’t detect the brief electrical events that spike your demand. You’re paying penalties for problems you can’t see.

This checklist identifies whether your facility is vulnerable to unrecovered demand charge inflation.

Part 1: Billing Structure Risks

☐ Does your utility contract include a “ratchet clause”?

What this means: If you have one unusually high demand reading in a single month, you’re locked into paying for that capacity for the next 11 months—even if you never use it again.

The cost: A single 15-minute spike can add $50K–$150K to your annual bill.

How to check: Look for language in your utility tariff about “minimum demand” or “85% of annual peak.”

☐ Are your utility bills based on 15-minute interval data?

What this means: Your meter averages your usage over 15-minute blocks. Brief spikes that last only seconds still count as your “peak” for that entire block.

The cost: Equipment startups, voltage sags, and power quality issues can create demand spikes that your meter captures but you never see.

How to check: Ask your utility for interval data. If they only provide monthly totals, you’re blind to what’s actually driving your demand charges.

☐ Can you distinguish between your facility’s peaks vs. grid-caused peaks?

What this means: Sometimes your demand charge spikes because the utility grid had a voltage drop, forcing your equipment to draw more current to maintain operation. You’re paying a penalty for their problem.

The cost: Without time-synchronized data, you can’t prove which peaks were caused by your operations vs. grid instability.

How to check: If you don’t have sub-metering data synchronized with utility voltage data, you can’t isolate the root cause.

Part 2: Equipment & Power Quality Risks

☐ Do you operate large motors, chillers, or pumps without startup monitoring?

What this means: When large motors start, they draw 6–8x their normal current for a few seconds. That brief surge can set your demand charge for the entire month.

The cost: A single chiller startup at the wrong time can add $30K–$80K to your annual bill.

How to check: Do you have monitoring on equipment startups? Can you control when large loads start to avoid peak periods?

☐ Are you near a data center or heavy industrial facility?

What this means: Large computational loads create voltage instability on the local grid. When voltage drops, your equipment compensates by drawing more current—increasing your demand charges.

The cost: You’re paying for grid instability you didn’t cause and can’t control.

How to check: Review whether your demand peaks correlate with neighboring facility operations.

☐ Is your power factor below 0.90?

What this means: Power factor measures how efficiently your facility uses electricity. Below 0.90, utilities charge penalty rates.

The cost: Poor power factor can inflate your bill by 10–25% through hidden multipliers and reactive power charges.

How to check: Look at your utility bill for “power factor” or “kVA” (apparent power) vs. “kW” (real power). If the kVA is much higher than kW, you’re paying penalties.

What Your Score Means

✅ 0–1 boxes checked: Low vulnerability. Your demand charges are likely legitimate.

⚠️ 2–3 boxes checked: Moderate vulnerability. You’re likely overpaying by $100K–$300K annually.

🚨 4+ boxes checked: High vulnerability. You’re almost certainly wasting $300K–$800K per year on preventable demand charge inflation.

What To Do Next

If you checked 2 or more boxes, you need forensic analysis of your electrical distribution network—not just energy audits.

Standard energy audits measure how much electricity you use. We measure how efficiently your network delivers it and identify structural problems causing permanent demand overcharges.

Our $2,500 Quick Scan identifies: