Demand charges: the kW line on a business electric bill

The short answer

A demand charge is a charge for capacity, not energy. Energy is measured in kilowatt-hours (kWh): how much electricity you used over the month. Demand is measured in kilowatts (kW): how fast you were drawing it at the busiest moment. EIA's glossary defines the demand charge as the portion of a bill "based on the consumer's maximum electric capacity usage," calculated under the customer's rate schedule.

The meter does not record an instant. It averages your draw over a short window that EIA calls the demand interval, usually a quarter hour, a half hour or an hour, and keeps the highest window of the billing period. That one reading, in kW, is multiplied by the tariff's price per kW. A business can therefore cut its kWh all month and still see the same demand charge if one busy interval stays as high as before.

Demand charges appear mainly on commercial and industrial tariffs, often only above a size threshold set in the tariff. Small accounts are often billed like homes, per kWh plus a fixed charge; larger accounts move to a schedule with a kW line. Which schedule applies to your meter is printed on the bill.

Reading the kW lines on a bill

A bill on a demand tariff typically shows three separate quantities. Look for each one before checking the math.

• Energy (kWh): total use for the billing period, priced per kWh, sometimes split into on-peak and off-peak hours.
• Measured or maximum demand (kW): the highest interval reading the meter recorded.
• Billing demand (kW): the figure actually multiplied by the price per kW. It equals the measured demand unless a tariff rule replaces it.

Those rules are where most surprises come from. Some tariffs count only demand set during on-peak hours. Some set a minimum billing demand. Some carry a ratchet, under which billing demand cannot fall below a share of the highest demand recorded in earlier months, so one hot afternoon in summer can keep raising bills into winter. Some add a charge or credit for power factor, a measure of how efficiently equipment such as motors draws current. The exact wording, prices and interval length are in your utility's rate schedule, which EIA defines as the "rates, charges, and provisions" under which service is supplied to a class of customers. The state utility commission keeps the official copy.

Demand charges are not limited to business tariffs. SRP, a public power utility in Arizona, describes its Residential Demand Price Plan as measuring household demand in half-hour intervals during on-peak hours and billing per kW for the interval of highest use; SRP has closed that plan to new enrollments and says it will end by the November 2029 billing cycle.

Why the same kWh can cost two businesses different amounts

The number that links kW and kWh is load factor. EIA defines load factor as "the ratio of the average load to peak load during a specified time interval." Written for one bill: load factor = kWh for the period ÷ (peak kW × hours in the period). A warehouse with refrigeration running around the clock has a high load factor; a restaurant that fires every oven and fryer at once for two short meal rushes has a low one.

Take two businesses on the same demand tariff that use the same kWh in a month. Their energy charges are identical. The one with the sharper peak has a higher billing demand, so it pays a larger demand charge, and when you divide its total bill by its kWh, its price per kWh comes out higher. Nothing in the tariff differs between them; only the shape of their use does.

This is the main reason a business price per kWh quoted out of context is misleading. On a demand tariff there is no single "rate per kWh": the all-in figure depends on load factor, and it moves every month as the peak moves.

What EIA's business averages contain

EIA does not publish demand charges, kW prices or tariffs. What it publishes for each state, and each utility, is average revenue per kWh: what a customer class paid in total divided by the kWh it used. For commercial and industrial customers, that total includes energy charges, demand charges, fixed charges and riders, so demand charges are already inside the averages below; they cannot be separated out.

Over the 12 months from September 2025 to August 2026, US commercial customers paid an average of 13.87¢ per kWh, 5.7% more than in the previous 12 months. Industrial customers paid 8.91¢ per kWh, up 6.5%, and residential customers 18.04¢ per kWh. In the latest month, August 2026, the commercial average was 14.47¢ per kWh against 13.87¢ per kWh¹ in August 2025; monthly figures since January 2026 are preliminary.

Residential18.04¢

Commercial13.87¢

Industrial8.91¢

All sectors14.15¢

Source: EIA, Electric Power Monthly / EIA-861M sales and revenue by state. Average revenue per kWh: what each customer class paid in total divided by what it used. Industrial customers take power at higher voltage and in large, steady volumes, so their average is lower. Monthly EIA data through August 2026 (released October 23, 2026); months since January 2026 are preliminary.

Show the numbers

Sector	United States (¢/kWh)
Residential	18.04¢
Commercial	13.87¢
Industrial	8.91¢
All sectors	14.15¢

EIA's explainer on prices and factors affecting prices gives the reason for the gap between classes: industrial consumers "use more electricity and can receive it at higher voltages," so serving them is less expensive, and their price is generally close to the wholesale price. The same page notes that demand for electricity contributes to the cost of supplying it, and that demand is usually highest in the afternoon and early evening. Demand charges are one way tariffs pass that cost to the customers who create the peak.

The averages also hide a wide range of customer sizes. In 2025, the average US commercial bill was $856.32 a month on 6,406 kWh, and the average industrial bill was $6,580.64². Both are means across very different accounts, from a corner shop to a large plant.

One utility, three customer classes

A single utility's EIA-861 report for 2025 shows how the average price falls as customers get larger. The figures are average revenue per kWh and average monthly bills per customer, not tariff rates.

At Xcel Energy in Colorado, bundled residential customers paid an average of 15.90¢ per kWh, its 225,020 commercial customers 12.49¢ per kWh with an average bill of $577.92, and its 315 industrial customers 8.12¢ per kWh with an average bill of $128,997.28³ a month.

At Georgia Power the steps were 16.28¢ per kWh for residential, 12.42¢ per kWh for commercial (average bill $1,076.13) and 7.77¢ per kWh for industrial (average bill $14,815.47). Entergy Louisiana went from 11.90¢ per kWh to 10.75¢ per kWh to 5.75¢ per kWh³.

SRP shows the extreme of the pattern: 45 industrial customers with an average bill of $767,012.96 a month and an average price of 8.36¢ per kWh, against 10.85¢ per kWh for its commercial customers and 13.98¢ per kWh³ for homes. It is the pattern EIA describes for customers that use more and take power at higher voltage, and it says nothing about what any one of those plants paid per kW.

Where business electricity costs most and least

State averages for businesses differ even more than for homes. Over the 12 months to August 2026, commercial customers paid the most in Hawaii (40.31¢ per kWh) and California (27.00¢ per kWh) and the least in North Dakota (7.58¢ per kWh) and Texas (8.57¢ per kWh). The median state was 12.56¢ per kWh¹.

Hawaii40.31¢

California27.00¢

Massachusetts24.17¢

Rhode Island23.60¢

District of Columbia22.92¢

Alaska22.79¢

New York22.28¢

Maine22.22¢

Connecticut21.69¢

New Hampshire21.12¢

Vermont20.78¢

New Jersey17.39¢

Maryland16.61¢

Michigan15.34¢

Alabama14.77¢

United States13.87¢

Source: EIA, Electric Power Monthly / EIA-861M sales and revenue by state. Commercial revenue divided by kilowatt-hours sold over the 12 months 2025-09 to 2026-08 (EIA-861M; months since January 2026 preliminary). Average revenue per kWh, all charges included; not a tariff. Period: September 2025 to August 2026.

Show the numbers

State	Commercial ¢/kWh, 12 months
Hawaii	40.31¢
California	27.00¢
Massachusetts	24.17¢
Rhode Island	23.60¢
District of Columbia	22.92¢
Alaska	22.79¢
New York	22.28¢
Maine	22.22¢
Connecticut	21.69¢
New Hampshire	21.12¢
Vermont	20.78¢
New Jersey	17.39¢
Maryland	16.61¢
Michigan	15.34¢
Alabama	14.77¢
United States	13.87¢

Commercial and industrial prices do not always move together. Over the same 12 months the median state's commercial average changed by +5.2% and its industrial average by +5.9%, but the largest industrial increase was +44.1% in the District of Columbia, followed by Ohio at +25.5%¹. Read single-state industrial changes with care: where the class is made of a small number of very large accounts, a change at one of them moves the whole average. Over a longer span, Lawrence Berkeley National Laboratory's 2026 retail price review puts the nominal increase from 2019 to 2025 at +26.0% for commercial and +27.0%⁴ for industrial customers.

Source: EIA, Electric Power Monthly / EIA-861M sales and revenue by state. Each dot is a state (horizontal: Commercial ¢/kWh, 12 months; vertical: Industrial ¢/kWh, 12 months). Commercial revenue divided by kilowatt-hours sold over the 12 months 2025-09 to 2026-08 (EIA-861M; months since January 2026 preliminary). Average revenue per kWh, all charges included; not a tariff. Period: September 2025 to August 2026. Industrial revenue divided by kilowatt-hours sold over the 12 months 2025-09 to 2026-08 (EIA-861M; months since January 2026 preliminary). Average revenue per kWh, all charges included; not a tariff. Period: September 2025 to August 2026.

Show the numbers

State	Commercial ¢/kWh, 12 months	Industrial ¢/kWh, 12 months
North Dakota	7.58¢	7.99¢
Texas	8.57¢	6.65¢
Nebraska	8.88¢	8.29¢
Oklahoma	9.30¢	6.66¢
Nevada	9.34¢	8.49¢
Idaho	9.62¢	8.13¢
Wyoming	9.73¢	8.73¢
Oregon	10.29¢	8.32¢
Utah	10.32¢	8.58¢
North Carolina	10.57¢	7.89¢
Missouri	10.91¢	8.56¢
New Mexico	10.94¢	5.30¢
Virginia	10.98¢	10.01¢
Iowa	11.28¢	7.43¢
Arkansas	11.34¢	6.86¢
South Dakota	11.34¢	9.20¢
Louisiana	11.50¢	6.35¢
Kansas	11.60¢	8.27¢
Washington	11.65¢	7.15¢
South Carolina	11.68¢	7.66¢
West Virginia	11.68¢	8.22¢
Florida	11.74¢	9.13¢
Georgia	11.76¢	8.18¢
Arizona	12.22¢	7.83¢
Kentucky	12.37¢	7.21¢
Minnesota	12.56¢	9.65¢
Montana	12.67¢	6.95¢
Colorado	13.14¢	9.44¢
Ohio	13.22¢	9.82¢
Tennessee	13.27¢	6.65¢
Wisconsin	13.49¢	9.35¢
Pennsylvania	13.59¢	10.50¢
Delaware	13.61¢	10.87¢
Mississippi	13.77¢	7.55¢
Illinois	13.81¢	10.18¢
Indiana	13.81¢	9.05¢
Alabama	14.77¢	7.86¢
Michigan	15.34¢	9.00¢
Maryland	16.61¢	14.35¢
New Jersey	17.39¢	14.81¢
Vermont	20.78¢	12.77¢
New Hampshire	21.12¢	17.64¢
Connecticut	21.69¢	17.73¢
Maine	22.22¢	15.57¢
New York	22.28¢	10.10¢
Alaska	22.79¢	22.50¢
District of Columbia	22.92¢	18.97¢
Rhode Island	23.60¢	21.51¢
Massachusetts	24.17¢	19.54¢
California	27.00¢	21.28¢
Hawaii	40.31¢	35.63¢

EIA's November 2026 Short-Term Energy Outlook forecasts a US commercial average of 14.01¢ per kWh for 2026 and 14.26¢ per kWh for 2027, a forecast change of +1.8%; for industrial customers the forecast is 9.03¢ per kWh and 9.16¢ per kWh⁵. These are national annual forecasts of average revenue per kWh and say nothing about any tariff's kW price.

Ways to lower a demand charge

Because the charge rests on one interval, the work is about the peak, not the monthly total.

1. Get interval data. Ask your utility for your meter's interval readings, or download them from its business portal. Find the day and time each month's peak was set; it is often a start-up, a shift change or a hot afternoon.
2. Stagger start-ups. Bringing heating and cooling units, compressors, ovens or chargers online one after another rather than together lowers the peak without lowering output.
3. Move flexible loads out of the window. If your tariff measures demand only on-peak, pre-cooling, pumping, charging or batch work before or after those hours avoids the charge. The time-of-use guide explains how peak windows are set.
4. Check the ratchet and the minimum. If billing demand stays high after a one-off peak, the tariff's ratchet may be the cause; the bill and rate schedule show how long it lasts.
5. Look at storage only with real numbers. A 2017 survey of US commercial demand charges by the National Renewable Energy Laboratory and Clean Energy Group described the size of demand charges as "a key predictor of the financial performance of behind-the-meter battery storage systems." Whether a battery pays depends on your tariff's kW price and your load shape; run it on your own interval data.
6. Ask whether another schedule fits. Utilities often offer more than one rate for a size class, with different splits between kW and kWh. The utility can tell you which schedules your account qualifies for; the commission's copy of the tariff confirms the terms.

To compare your business with its area, divide a year of bills by a year of kWh and set the result against your state's commercial or industrial average for the same 12 months, remembering that a low load factor alone can put you well above it.