I keep hearing experienced auditors talk about load factor but I'm not sure how to use it practically. I understand the formula — average demand divided by peak demand — but what does a load factor of 0.45 actually tell me about whether the client is on the right rate?
Load factor analysis — what's normal?
Load factor tells you how evenly a facility uses electricity over time. A load factor of 0.45 means the facility uses about 45% of its maximum capacity on average. That's fairly typical for a general commercial building — offices, retail, etc. A factory running three shifts might have a load factor of 0.70-0.85. A church or event venue might be 0.15-0.25. Why it matters for rate selection: high load factor customers typically save money on demand-based rates because their peak demand is closer to their average. Low load factor customers get crushed by demand charges because they spike and then sit idle. If your client has a load factor below 0.30 and they're on a demand rate, check whether a non-demand rate would be cheaper.
Derek gave an excellent explanation. I'd add one practical tip. Calculate load factor for every month, not just annually. Seasonal businesses can have a high annual load factor but very low monthly load factors during their off-season. A ski resort in Colorado had an annual load factor of 0.52 but a July load factor of 0.18. They were on a demand rate year-round and getting killed during summer months when the lifts were off but the demand ratchet clause kept billing them for winter peaks. Switching to a seasonal rate saved them $3,400/month during the off-season.
That makes it much clearer. The monthly calculation is key — I was only looking at it annually and missing the seasonal pattern. Going to recalculate for my current client right now.