Demand Charges Explained: How They Affect Your Commercial Electric Bill in Illinois

What Are Demand Charges? The Hidden Cost Inflating Your Illinois Electric Bill

If you manage energy costs for a business in Illinois, you've probably noticed a line item labeled "Demand Charge" or "Capacity Charge" on your electricity bill. For many businesses, this single charge represents a larger portion of their bill than actual energy consumption—yet it receives far less attention.

Understanding the Difference: Energy vs. Demand

To understand demand charges, you first need to distinguish between two fundamentally different aspects of electricity:

Energy (measured in kWh): This is the total amount of electricity you consume over a billing period. Think of it like the total gallons of water you use in a month. You're charged a per-kWh rate for every unit of energy consumed.

Demand (measured in kW): This is the rate at which you consume electricity at any given moment—your instantaneous power draw. Think of it like the water flow rate through your pipes. Demand charges are based on your peak usage during the billing period.

Here's an analogy: Imagine two businesses that both consume 10,000 kWh in a month. Business A uses electricity steadily throughout the month. Business B uses most of its electricity in short, intense bursts. Even though they consumed the same total energy, Business B has much higher demand charges because it required the utility to have more capacity available during peak moments.

Why Do Demand Charges Exist?

Demand charges exist because the utility must build and maintain infrastructure capable of meeting peak electricity needs—even if that peak only occurs for a few minutes per month. This infrastructure includes:

• Generation capacity: Power plants must be able to produce enough electricity to meet peak demand
• Transmission lines: High-voltage lines must be sized to handle peak loads
• Distribution equipment: Transformers and local lines serving your building must handle your peak draw
• Grid stability equipment: Equipment to maintain voltage and frequency during demand spikes

From the utility's perspective, it's fair to charge customers who require more capacity—even if they don't use that capacity often. A manufacturing plant that runs all equipment simultaneously for one hour each day requires more infrastructure than an office building using the same total energy spread evenly throughout the day.

Who Pays Demand Charges in Illinois?

In Illinois, demand charges apply primarily to commercial and industrial customers. Specifically:

ComEd territory:

• Business customers with demand above 100 kW face explicit demand charges
• Smaller commercial customers may have demand-related components embedded in their rates
• Large industrial customers (above 1,000 kW) have complex rate structures with multiple demand components

Ameren Illinois territory:

• Commercial rates include demand charges for customers meeting size thresholds
• Rate structures vary by customer class and size
• Time-of-use demand options available for some customer classes

Residential customers in Illinois generally don't face explicit demand charges, though some demand-related costs are recovered through higher per-kWh rates.

How Significant Are Demand Charges?

For commercial and industrial customers, demand charges are substantial:

• Small commercial (100-500 kW): Demand charges typically represent 20-40% of total bill
• Medium commercial (500-2,000 kW): Demand charges often represent 30-50% of total bill
• Large industrial (2,000+ kW): Demand charges can exceed 50-70% of total bill

At ComEd's current rates, demand charges for medium to large commercial customers range from $7-$15 per kW per month. For a business with 500 kW peak demand, that's $3,500-$7,500 in demand charges alone—before any energy consumption charges.

The One-Spike Problem

Perhaps the most frustrating aspect of demand charges is the "one-spike problem." Your demand charge for an entire month is set by your single highest demand measurement—typically a 15-minute or 30-minute peak. This means:

• One poorly-timed startup sequence can cost thousands in extra demand charges
• A brief equipment malfunction can set your demand for the month
• Simultaneous use of equipment that normally runs at different times creates expensive peaks

Understanding this dynamic is the first step toward controlling demand charges, as we'll explore in the following sections.

Decoding Your Bill: How ComEd & Ameren Calculate Your Peak Demand Charges

The mechanics of demand charge calculation vary between utilities and rate classes. Understanding exactly how your utility measures and charges for demand is essential for developing an effective reduction strategy.

The Measurement Window

Both ComEd and Ameren measure demand using interval meters that record power consumption continuously. The key parameters are:

Demand interval: Typically 15 or 30 minutes. Your meter averages your power draw over each interval. The highest average during the billing period becomes your "peak demand."

Example: If your facility draws 400 kW for 10 minutes, then 100 kW for 5 minutes, your 15-minute demand interval average is (400 × 10 + 100 × 5) / 15 = 300 kW.

This averaging provides some smoothing—a 5-minute spike won't hit as hard as a sustained 15-minute surge. But it still means that your entire month's demand charge is set by one 15-minute window.

ComEd Demand Charge Structure

ComEd's commercial rate structures include several demand-related components:

Distribution Demand Charge: Based on your peak demand during the billing period. This covers the cost of local distribution infrastructure. Current rates range from approximately $3-$8 per kW depending on rate class.

Capacity Charge (Capacity Obligation): Based on your coincident demand during PJM's annual system peak hours. This represents your share of regional generation capacity costs. This is calculated differently—it's based on your demand during the handful of hours when the entire PJM grid experiences peak demand, typically summer afternoons.

Transmission Charge: May include demand-based components for larger customers, reflecting costs of high-voltage transmission infrastructure.

The combination of these charges means your total "demand-related" costs may appear across multiple line items on your bill.

Ameren Illinois Demand Charge Structure

Ameren's demand charge structure follows similar principles but with some differences:

Delivery Demand Charge: Based on monthly peak demand, covering distribution infrastructure costs.

Capacity-Related Charges: Ameren Illinois is part of the MISO (Midcontinent Independent System Operator) grid rather than PJM, which affects how capacity costs are calculated and allocated.

Rate Design Variations: Ameren offers different rate designs for various customer sizes and types, some with time-differentiated demand charges.

Time-of-Use Demand Charges

Both utilities offer or require time-of-use (TOU) rates for certain customer classes. Under TOU demand structures:

• On-peak demand: Measured only during defined peak hours (typically weekday afternoons in summer). Higher rate per kW.
• Off-peak demand: Measured during all other hours. Lower rate per kW or sometimes no separate demand charge.

TOU demand structures reward businesses that can shift operations to off-peak hours, as on-peak demand charges may be 2-3× higher than off-peak rates.

Ratchet Clauses

Some commercial rate structures include "ratchet" clauses that can affect your demand charges for multiple months:

Monthly ratchet: Your billed demand may be the higher of your actual demand or a percentage (often 80-90%) of your peak demand from the previous 12 months.

Seasonal ratchet: Your winter demand charge may be based on a percentage of your summer peak.

Ratchets protect utilities from customers who have high peaks in some months but much lower usage in others. For customers, ratchets mean that a single high-demand month can affect bills for an entire year.

Reading Your Bill: Finding the Demand Charges

To analyze your demand charges, locate these elements on your utility bill:

1. Peak Demand (kW): Usually shown near your kWh consumption figures
2. Demand Charge rate ($/kW): May appear in the rate breakdown or require checking your rate tariff
3. Total Demand Charges ($): Look for line items mentioning "demand," "capacity," or "distribution facility"
4. Time-of-use demand: If applicable, separate on-peak and off-peak demand values

If your bill doesn't clearly break out demand charges, request a detailed bill from your utility or obtain your rate tariff schedule to understand how charges are calculated.

Analyzing Your Demand Profile

Modern smart meters provide detailed interval data that reveals your demand patterns:

• ComEd: Access interval data through your Business Account at comed.com
• Ameren: Request interval data or access through your business account portal

Analyzing this data helps identify:

• When your peaks typically occur
• What operations contribute to peak demand
• Opportunities to shift or reduce demand
• Anomalies that might indicate equipment issues

3 Actionable Strategies to Immediately Reduce Your Business's Demand Charges

Once you understand how demand charges work, you can implement strategies to reduce them. Here are three approaches that can deliver immediate results for Illinois businesses.

Strategy 1: Load Shifting and Scheduling

The most straightforward demand reduction strategy is avoiding simultaneous operation of high-draw equipment. This requires understanding your operations and implementing scheduling discipline.

Identify peak contributors: List all major electrical loads in your facility with their approximate kW draw:

• HVAC systems (often 30-50% of commercial demand)
• Production equipment and machinery
• Lighting systems
• Compressed air systems
• Electric vehicle charging
• Kitchen equipment (for restaurants/food service)

Stagger startup times: Morning startup is often the worst time for demand spikes. When HVAC systems, production equipment, lighting, and computers all power on simultaneously, demand peaks dramatically. Instead:

• Start HVAC 30-60 minutes before other systems
• Sequence production equipment startups with 5-10 minute gaps
• Use timer controls to stagger lighting zones
• Delay non-essential loads until initial startup surge passes

Implement production scheduling: If your operation has flexibility in when tasks are performed:

• Run highest-draw processes during different time windows
• Schedule equipment maintenance during peak production times (reduces load)
• Consider overnight or weekend operation for energy-intensive but flexible processes

Strategy 2: Demand Response and Load Curtailment

When you can't avoid high demand, automated systems can curtail non-essential loads during peak periods.

Manual demand response: Train staff to recognize impending demand peaks and take action:

• Reduce HVAC setpoints temporarily during peaks
• Delay starting additional equipment
• Turn off non-essential lighting and equipment
• Pause flexible processes like EV charging or water heating

Automated demand response: Energy management systems can automatically shed loads when demand approaches a threshold:

• HVAC cycling: Temporarily reduce cooling/heating during peak periods
• Lighting controls: Dim or turn off non-essential lighting
• Production equipment sequencing: Prevent simultaneous operation of specific equipment
• Real-time monitoring alerts: Notify staff when demand approaches thresholds

Utility demand response programs: Both ComEd and Ameren offer demand response programs that pay businesses to reduce load during grid emergencies:

• ComEd: Demand Response programs through PJM market participation
• Ameren: Demand response options through MISO programs

These programs provide additional revenue while helping you develop demand management capabilities.

Strategy 3: Equipment Upgrades and Efficiency Improvements

Some demand reduction requires capital investment, but the payback can be substantial.

High-efficiency equipment: Modern equipment often has lower demand profiles:

• Variable frequency drives (VFDs) on motors reduce startup surge and modulate ongoing demand
• High-efficiency HVAC systems provide the same cooling/heating with lower kW draw
• LED lighting reduces lighting demand by 40-70% compared to traditional lighting
• Efficient compressed air systems with variable speed compressors

Power factor correction: Poor power factor means your equipment draws more current than necessary to perform work. Installing power factor correction equipment:

• Reduces apparent demand (kVA)
• May reduce demand charges if your utility bills on kVA rather than kW
• Improves overall electrical system efficiency
• Typical payback period: 1-3 years

Battery energy storage: The most advanced demand management tool is on-site battery storage:

• Batteries charge during low-demand periods
• Discharge during peak demand to reduce grid draw
• Can nearly eliminate demand spikes with proper sizing
• Provides backup power and additional grid services revenue

Battery storage costs have declined significantly and may be economical for businesses with high demand charges and load profile characteristics that make demand reduction challenging through other means.

Quick Wins Checklist

Start with these low-cost or no-cost actions:

• ☐ Obtain and analyze your interval data for the past 12 months
• ☐ Identify your top 5 peak demand events and their causes
• ☐ Implement staggered startup procedures for Monday mornings and post-holidays
• ☐ Train staff on manual demand response procedures
• ☐ Set programmable thermostats to pre-cool buildings before peak hours
• ☐ Audit lighting for LED upgrade opportunities
• ☐ Check power factor and evaluate correction if below 0.90
• ☐ Explore utility demand response program enrollment

Partner with the Pros: How a Custom Energy Strategy Can Eliminate High Demand Costs for Good

While the strategies above can deliver significant savings, maximizing demand charge reduction often requires professional analysis and customized solutions. Here's when and how to engage expert help.

When DIY Demand Management Isn't Enough

Consider professional energy consulting when:

• Demand charges exceed $5,000/month: At this level, even modest percentage reductions justify professional engagement
• Complex operations: Multiple shifts, 24/7 operations, or diverse equipment make analysis challenging
• Limited internal expertise: You don't have engineering staff to analyze data and implement controls
• Capital investment decisions: Evaluating battery storage, major HVAC replacements, or other significant investments
• Multiple facilities: Coordinating demand management across locations adds complexity

What Professional Energy Analysis Includes

A comprehensive energy assessment from a qualified consultant typically includes:

Detailed load analysis:

• Sub-metering of major equipment to identify demand contributors
• Analysis of interval data to identify patterns and anomalies
• Load profiling to understand daily, weekly, and seasonal variations
• Identification of "low-hanging fruit" for immediate savings

Rate analysis:

• Evaluation of current rate structure against alternatives
• Analysis of time-of-use rate options
• Comparison of utility default rates vs. ARES supply options
• Projection of costs under different scenarios

Technology recommendations:

• Energy management system specifications
• Equipment upgrade priorities with ROI analysis
• Battery storage feasibility study
• Solar + storage integration analysis

Implementation support:

• Vendor selection and project management
• Incentive and rebate capture
• Measurement and verification of savings
• Ongoing optimization support

Choosing an Energy Consultant or Broker

When selecting professional help, consider:

Credentials and experience:

• Certified Energy Manager (CEM) or similar credentials
• Experience with Illinois utilities and rate structures
• Track record with businesses similar to yours
• References from past clients

Compensation structure:

• Fee-based: Fixed project fees or hourly rates; no conflict of interest
• Commission-based: Paid by energy suppliers based on contracts signed; potential conflicts
• Shared savings: Compensation tied to actual savings achieved; aligned incentives

Scope of services:

• Does the consultant address both supply-side (energy procurement) and demand-side (efficiency, demand management)?
• Are they vendor-neutral or do they represent specific equipment manufacturers?
• Do they provide ongoing support or only one-time analysis?

Illinois-Specific Incentives and Programs

Professional consultants help capture available incentives that can improve project economics:

ComEd incentives:

• Demand response participation payments
• Equipment rebates for efficient motors, VFDs, HVAC, and lighting
• Custom incentives for large projects with verified demand reduction

Ameren Illinois incentives:

• Business energy efficiency rebates
• Custom incentive programs for larger projects
• Demand response program participation

Federal incentives:

• Investment Tax Credit for battery storage systems
• Commercial energy efficiency deductions (Section 179D)
• Accelerated depreciation for qualifying equipment

Building Your Long-Term Energy Strategy

The most effective approach to demand charge management is part of a comprehensive energy strategy that includes:

• Energy procurement optimization: Securing competitive supply rates through alternative suppliers
• Demand management: Reducing peak demand through the strategies discussed
• Efficiency improvements: Reducing overall energy consumption
• On-site generation: Solar and other distributed resources
• Storage integration: Batteries for demand management and resilience

A holistic approach maximizes total savings and positions your business for the evolving energy landscape, including potential future changes to rate structures and increasing emphasis on grid flexibility.

For help navigating Illinois electricity rates and finding the best supply options for your business, explore our pricing comparison tools or contact us for personalized assistance.

Frequently Asked Questions

Conclusion: Taking Control of Your Illinois Business's Demand Charges

Demand charges represent one of the largest—and most controllable—components of commercial electricity costs in Illinois. By understanding how these charges work and implementing targeted strategies, businesses can achieve significant savings without sacrificing productivity or comfort.

The path to demand charge reduction begins with data. Obtain your interval data, identify your peak demand events, and understand what operations drive those peaks. Even simple changes like staggered equipment startup and manual load curtailment can produce immediate savings.

For more substantial reductions, consider technology investments like energy management systems, variable frequency drives, LED lighting, and potentially battery storage. These investments often pay for themselves through demand charge savings while also reducing energy consumption and improving operational resilience.

Remember that demand charges are just one component of your total energy costs. A comprehensive energy strategy addresses supply procurement, demand management, efficiency, and potentially on-site generation. The most successful businesses integrate all these elements to minimize total energy costs while maintaining operational flexibility.

Whether you tackle demand management internally or engage professional help, the key is to start. Every month with unmanaged demand charges is money lost. With Illinois's significant demand charge rates, even modest percentage improvements translate to thousands of dollars in annual savings for typical commercial operations.

For more information on managing your business's energy costs in Illinois, explore our guides to commercial electricity rates and time-of-use pricing strategies.