Can someone explain the difference between contract demand and actual demand for industrial accounts? I have a client on AEP Ohio paying for 800 kW contract demand but their actual peaks are only hitting 650 kW. Are they overpaying?
Contract Demand vs Actual Demand Confusion
Scott, contract demand is what they're committed to pay regardless of actual usage - it's like a reservation fee. If they're consistently under 800 kW, they should request a reduction. But check the tariff - some have penalties for going over contract demand that might make the buffer worth it.
Susan's right about the reservation aspect. Also check if they get any voltage discounts or special rates that require maintaining the higher contract demand. Sometimes the economics work out even with unused capacity.
Good points. I'll analyze their rate structure and look at seasonal variations too. Their peak usage might spike in summer with cooling loads. Don't want to reduce contract demand only to get hit with overage penalties later.