Demand Charge
Texas Electricity Glossary
A demand charge is a fee based on your peak electricity draw — measured in kilowatts (kW) at a specific moment — rather than total energy consumed over a billing period (kWh). In Texas residential electricity, demand charges are rare but growing, particularly on plans designed for homes with solar systems, EV chargers, or other high-draw loads. Commercial electricity almost universally includes demand charges; most residential plans do not.
kW vs. kWh — The Key Distinction
Think of electricity like water: kW is like the flow rate (how fast water comes out of the tap) and kWh is like total volume (how many gallons you used). A demand charge bills you for the size of the pipe you needed at peak — even if you only used that capacity briefly.
If your home runs an oven (4 kW), air conditioner (3.5 kW), and EV charger (7.2 kW) simultaneously, you are drawing 14.7 kW at that moment. If a demand charge applies, your bill includes a fee based on that 14.7 kW peak — regardless of whether it lasted 15 minutes or 8 hours.
Demand Charges in Texas Residential Plans
Standard Texas residential fixed-rate and variable-rate plans do not include demand charges. However, as smart meters now report usage in 15-minute intervals, some REPs are beginning to offer demand-based residential plans. These may be attractive for very consistent households but can be expensive for homes with variable, peaky load profiles.
If a plan's EFL includes a $/kW line item in addition to the $/kWh energy rate, that is a demand charge. Always factor it into your true monthly cost before enrolling.
Reducing Demand Charges
The key to minimizing demand charges is load leveling — staggering high-consumption activities so they do not overlap. Running your EV charger, dryer, and dishwasher at different times (rather than all at once) keeps your peak kW lower. Home energy management systems and smart plugs can automate this.
Related Terms
- kWh — the energy measure that standard plans are priced on
- Smart Meter — enables demand measurement via 15-minute interval data
- EFL — will disclose demand charge components if they apply
- Effective Rate — demand charges must be included for a true all-in effective rate
Frequently Asked Questions
What is a demand charge on an electricity bill?
A demand charge is a fee based on the highest rate of electricity consumption (measured in kilowatts, kW) recorded during a billing period — typically the peak 15-minute interval. It is separate from the energy charge (based on total kWh consumed). Demand charges are standard in commercial electricity billing and are becoming more common in some Texas residential plans tied to smart meter interval data.
Do residential Texas electricity plans have demand charges?
Most standard Texas residential plans do not include demand charges — they use a simple per-kWh energy rate plus the TDU delivery charge. However, some newer time-of-use and demand-response residential plans do incorporate demand-based pricing, particularly those targeting households with solar systems or electric vehicle chargers. Always check the EFL before enrolling.
How is a demand charge different from an energy charge?
An energy charge (in $/kWh) bills you for total electricity consumed over a month. A demand charge (in $/kW) bills you for your peak power draw — how much electricity you pulled at once during the highest-demand interval. You can reduce energy charges by using less electricity total; you reduce demand charges by spreading high-power activities across time rather than running them simultaneously.