Victor from Cleveland. New to commercial auditing. Heard the term demand ratchet but the utility's tariff language is confusing. Can someone explain what a ratchet actually does in plain terms?
What is a demand ratchet and how does it hurt clients
Karen from Boise. A ratchet clause means your billing demand is not just what you actually used this month. It is the higher of what you used this month or a percentage of your peak demand from some prior period — usually the last 11 or 12 months. So if you peaked at 500 kW in July you may be paying for at least 400 kW of demand every month through the following July even if you only use 200 kW in December.
So the ratchet locks in a minimum billing demand based on a historical peak?
Karen again. Exactly. The utility uses it to ensure they recover the fixed infrastructure costs they incurred to serve your client's peak demand. From the utility's perspective they built capacity for 500 kW — they want to recover that investment whether or not the client uses it.
Paul from Minneapolis. The audit opportunity is when the ratchet is based on a demand peak that was anomalous — a one-time equipment test, a brief malfunction, a commissioning event. If that peak was not representative of normal operations you can sometimes argue for a demand reset.
Victor here. What would anomalous mean in practice? Like if the peak happened because of a power surge?
Paul again. Good examples include: a refrigeration compressor malfunction that caused a runaway current draw, a one-time equipment load test, construction equipment temporarily connected during a renovation, or a utility-side voltage sag that caused motor loads to draw extra current compensating. Any documented non-recurring event can support an anomaly argument.