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 Understanding Demand and Consumption

        Demand           =    KW

        Consumption   =    KWH

The difference between demand (KW) and consumption (KWH) is vital to your choices in
reducing your energy costs. A simple way to see the difference between demand and
consumption is by considering two examples.

LIGHTING EXAMPLE: One 100-watt light bulb burning for 10 hours consumes 1,000 watt-hours
or 1 kWh. The entire time it is on, it requires or "demands" 100 watts or 0.1 kW from the utility.
That means the utility must have that 0.1 kW ready whenever the customer turns the lamp on.

Similarly, ten 100-watt light bulbs burning for 1 hour consume 1,000 watt-hours or 1 kWh. Note that in both
examples, the consumption is 1 kWh, however, look how differently the second situation impacts the utility
from a demand perspective. The serving utility must now be prepared to provide ten times as much 'capacity'
in response to the "demand" of the 10 light bulbs operating all at once.

If both of these customers are billed for their consumption only, both will get the same bill for 1 kWh of energy.
And that is the way most residential customers are billed. But the requirement for the utility to meet this energy
requirement is very different. In the second case, the utility has to have 10 times more generating 'capacity' to
provide the second customer's brief high demand for power compared to the first case.

Commercial and industrial customers are often billed for their hourly consumption patterns and their peak demand
 for energy. These customers often have special meters that measure both, unlike residential meters that just
record total consumption in a time period, usually one month.

So, you might ask, "why doesn't the utility bill all customers for demand and consumption?" Seems like that is only fair.
And it would be, but the fact is that most homes have a pretty similar demand profile and the meters capable of measuring
both demand and consumption are much more expensive. Far too expensive to justify having one on every home. So all
most residential customers need to be concerned with now is consumption billing. As the cost of metering drops, and as
automatic metering advances, we may see increased use of demand billing for homes.


  Analogies for Understanding Demand and Consumption


Another way of understanding demand and consumption is with a "filling the bucket" analogy.
Suppose you want to fill a 5 gallon bucket with water. You can use an inexpensive hose connection
to your sink providing 1 gallon per minute to do it, and it will take 5 minutes.

Or you can get to a more expensive large faucet that provides 5 gallons per minute, it will fill in just one minute.

The flow rate is the equivalent to demand, and the 5 gallons of water are equivalent to consumption.
 In this example, filling both buckets has the same "consumption" but very different "demands."

The same is true of electricity. While you may be able to accomplish the same thing by operating a small
wattage appliance for many  hours as operating something of higher wattage for just a few, the higher
 wattage piece of equipment will create a higher demand on the utility. Using our analogy, you are asking
 for a larger pipe, and that costs more. If time is of the essence, it might be worth having the more expensive
high flow rate or wattage. This is why utilities often charge some customers for both demand and consumption.
A customer that sets a high demand requires more services from the utility--additional generating plant capacity,
 and more expense in lines, transformers and substation equipment.

Some people like to use a automobile analogy to explain and understand how demand and consumption relate.
The car's speedometer is like the demand meter and the odometer is like a consumption meter.
Two cars could travel the same 100 mile road, one at 10 miles per hour for 10 hours and the other at
100 miles per hour for 1 hour. It takes a much more capable and expensive engine to power the car
at 100 miles per hour than it does to power the one going only 10 miles per hour.


  How Demand Changes Are Computed and Billed


As you have just learned, electric power use is metered in two ways: on maximum kilowatt use during a
given time period (i.e., kW demand typically measured in 15-minute or 30-minute intervals) and on total
cumulative consumption in kilowatt hours (kWh). A customer's electric rate is set using a complex process
of tracking cost of services and often seeking regulatory approvals.

The general theory is that demand charges reflect the utilities' fixed costs of providing a given level of
power availability to the customer, and energy charges reflect the variable portion of those costs as the
customer actually uses that power availability.

Power companies often use a meter that records the power use during either a 15- or 30-minute time window.
The average power used during that window is used to calculate the kW demand. The peak demand used for
billing purposes in any month can be:

1. Time of Day: Dependent on the time of day (i.e., on-peak {usually during the day} and off-peak
{usually at night time periods) and/or the day of the week (e.g., Monday through Friday and separately for weekends):
The metering system tracks the highest usage anytime during the month under the appropriate time windows.
These pricing schedules are generally referred to as Time of Use (TOU) rates.

2. Seasonally Differentiated: For example, the demand charge might be higher during the summer than during
the winter, or vice versa.

3. Declining Blocks: This is where the demand charge up to a given level is at one price with the price declining
 above that level. For example, the demand charge might be $10 per kW up to 10,000 kW demand, and drop to
 $6 per kW for demands in excess of 10,000 kW.

4. Interruptible Blocks: The demand charge depends upon whether the customer can reduce electrical demand to
a given level if it is notified in advance by the utility. The price reduction often varies with the time of notice
(i.e., the discount is higher if shorter notice is given). Some utilities also offer direct load control for air conditioning
and water heating equipment, the utility itself can cycle this equipment on and off for brief periods.

5. Ratchet: Certain rate designs incorporate minimum billing demands based upon historical peak demands.
For example, if the peak demand last summer was 500 kW and the rate design has a 50% ratchet, the minimum
billing demand would be 250kW (500 kW times 50%) for the following eleven months, regardless of whether the
actual demands were lower.

The meter recording kWh power use during either a 15- or 30-minute time window also tallies total kWh use.
This meter is read at roughly monthly intervals and total power use is billed according to applicable pricing schedules.
The type of energy charge pricing in common use includes:

1. Time of day: For example, on-peak and off-peak time periods and/or the day of the week (e.g., Monday through Friday):
     These pricing schedules are generally referred to as Time of Use (TOU) rates.

2. Seasonally Differentiated: For example, the energy charge might be higher during the summer than during the winter, or vice versa.

3. Declining Blocks: This is typically where the energy charge to a given level is at one price and that price declines
    above that level. For example the energy charge might be $0.05 per kWh for the first 100,000 kWhrs used in a month
   and drop to $0.04 per kWh for the next 100,000 kWhrs.



Explanation of KW and KWH provided by Duke Energy.