I've got two new junior auditors starting next month and I'm trying to figure out the best way to explain demand charges to them. They both come from accounting backgrounds but have zero utility experience. I remember when I started at FirstEnergy, demand billing seemed like rocket science. Anyone have any good training materials or analogies that work well? We see a lot of industrial accounts here in Ohio with complex demand structures on the OE tariffs.
Best way to explain demand charges to new auditors?
Jim, I always use the highway analogy. KW is like the width of the highway - how much traffic can flow at one time. KWh is like the total number of cars that traveled all month. Duke Energy bills you for both the size of highway you need AND the total cars that used it. Usually clicks pretty quick when I explain it that way.
The highway thing works great! I also show them actual interval data from APS accounts here in Phoenix. Nothing beats seeing a 15-minute demand spike that costs $3,000 extra per month. I pull up a manufacturing client who had a 850 KW spike at 3:47 PM on a Tuesday - their demand charge jumped from $4,200 to $7,200 just from that one peak. Makes it very real very fast.
Sarah's right about real examples. I keep a folder of KUB interval data showing demand disasters. Had a hotel that got hit with a $2,800 monthly increase because their new kitchen equipment all kicked on simultaneously during peak hours. The 15-minute window concept is crucial - I always emphasize it's not average demand over an hour, it's the highest 15-minute period scaled up to an hourly rate.
For CPS Energy commercial accounts, I start with the water hose analogy. Water pressure is like voltage, gallons per minute is like current, and the biggest hose you need all month is demand. Then I show them actual bills where demand charges are 40-50% of total costs. One restaurant client pays $1,200/month in energy but $1,800/month in demand charges. That usually gets their attention.
Seattle City Light has some great educational materials I use. Their demand billing explanation is pretty clear. I also created a simple Excel model that shows how a 100 KW spike for 15 minutes can cost $1,500/month for 12 months on their Schedule 49. Lets new auditors play with different scenarios and see the financial impact immediately.
These are all great ideas. I'm definitely stealing the highway analogy! SMUD has some tricky demand provisions too - the seasonal ratchets really throw people off. I find it helps to walk through an actual 12-month billing analysis showing how that July peak of 450 KW affects bills through March of the following year.
Just wanted to follow up - tried the highway analogy with my new hires and it worked perfectly! They immediately grasped why that manufacturing client is paying $8,500/month in demand charges. Thanks everyone for the suggestions. Now if I could just figure out how to explain power factor to them without their eyes glazing over...