Rob T from Columbus, OH. AEP Ohio territory. My client runs a tool and die shop. Pulled 24 months of bills and noticed one billing period was 45 days instead of the normal 30. AEP read the meter late and combined what should have been two periods into one. The energy charges are proportionally correct — 45 days of usage at the normal rate. But the demand charge was billed at the full monthly rate of $11.20/kW with no proration. The demand during that 45-day window was 375 kW, which is higher than any normal 30-day period because it captured more operating days. So the demand charge was $4,200 on that one bill vs a normal month around $3,100. And here is the kicker — that inflated demand set the ratchet for the next 11 months at 80%, costing the client an extra $900/month for nearly a year. Total damage from one late meter read: about $14,000.
45-day billing period but charged full monthly demand — $4,200 overcharge
Rob, this is a classic proration error and it is more common than people realize. Most commercial tariffs have a proration provision that says if the billing period exceeds a certain number of days — usually 32 or 35 — the demand charge should be prorated or the demand measurement should be adjusted. Pull the AEP Ohio tariff and look for the billing period adjustment clause. It is usually in the General Terms and Conditions section, not in the rate schedule itself.
I work in AEP Ohio territory too and this is a known issue. Their tariff Section 10.3 covers irregular billing periods. For periods exceeding 32 days, demand is supposed to be prorated by multiplying the measured demand by 30 and dividing by the actual number of days in the period. So 375 kW times 30 divided by 45 equals 250 kW for billing purposes. That alone drops the demand charge from $4,200 to $2,800.
Walt, that is exactly what I needed. Section 10.3 — I had been looking in the rate schedule and could not find it. The General Terms section is 80 pages long and easy to miss. So the prorated demand should have been 250 kW, which means the demand overcharge on that one bill is $1,400. But more importantly, the ratchet should have been based on 250 kW, not 375 kW. That changes the ratchet impact for the following 11 months.
Rob, recalculate the ratchet cascade. If the correct demand was 250 kW, and the 80% ratchet floor is 200 kW, your client was probably already hitting 200+ kW in normal months anyway. So the ratchet impact might be smaller than the $900/month you estimated. Run the numbers with the corrected 250 kW peak and see what the ratchet actually does to each subsequent month.
Rachel, good point. Ran the corrected ratchet calculation. The client normal monthly demand ranges from 280-340 kW. With the corrected peak of 250 kW, the ratchet floor would be 200 kW, which they exceed every month anyway. So the ratchet impact is actually zero once the peak is corrected. The entire overcharge is the $1,400 demand charge on the long billing period plus about $6,800 in inflated ratchet charges over 11 months where the billing system used 300 kW (80% of 375) as the floor instead of the organic monthly demand. Total recovery: $8,200.
Good analysis Rob. One more thing to check — did AEP apply any other monthly charges at the full rate during the 45-day period? Customer charges, minimum charges, rider charges that are assessed per billing period? Those should all be prorated too under Section 10.3.
Greg, checking now. The customer charge is $45/month — should have been prorated to $67.50 for 45 days but was billed at $45. Wait, that actually favored my client. And the distribution rider was also billed at the 30-day rate. So AEP prorated some charges but not others. The demand charge was the big miss.
The inconsistent proration is telling. It suggests the billing system has automatic proration for some charge components but not others. Demand charges on irregular periods probably require a manual adjustment that nobody made. This is likely a systemic issue affecting every AEP customer who gets a long billing period.
Filed the dispute with AEP citing Section 10.3. They acknowledged the proration error within a week — apparently their billing system does not automatically prorate demand charges for irregular periods. They corrected the demand charge AND recalculated the ratchet for the following 11 months. Total credit: $8,400. Slightly more than my $8,200 estimate because I missed a small rider adjustment.
One more note for the thread — I went back and checked all my other AEP clients for irregular billing periods. Found two more with long periods that had unprorated demand charges. Smaller amounts — $1,100 and $2,300 — but easy wins once you know what to look for. This is now a standard check in my audit process.