Fixed vs. Variable Charges

32%of this guide, read. The rest of it is below.

1. 02 The mechanism Demand-based vs. power-only rates

   There are two big categories of commercial rates. Demand-based rates charge a separate dollars-per-kilowatt demand charge and a dollars-per-kilowatt-hour energy charge. Power-only or general service rates are effectively a flat fee per kilowatt-hour with little or no demand component.

   Category	Fixed feel	Variable feel	Best fit
   Power-only / general service	Small customer charge only	Most of the bill flows with kWh	Smaller or highly variable operations, poor load factor
   Demand-based	Demand portion feels fixed once set for the month, longer with a ratchet	Energy portion moves with kWh; riders attach per unit	High, stable loads that use capacity consistently

   A high-load-factor demand rate can carry an energy charge as low as 3 ¢/kWh to 6 ¢/kWh, which looks great, but you pay more per kW. A simple power-only rate might sit near 25 ¢/kWh with no demand component at all. Neither is better in the abstract.

   Watch these

   The structures that turn behavior into fixed cost

   Time-of-use demand takes your highest kW during specific hours. Non-coincident demand takes the highest kW regardless of time. System-peak demand looks at your demand when the whole grid is at its worst hour. Ratchets take a percentage of your past peaks and hold that as a floor. All of these turn part of your cost into something that stays elevated long after a single event, which is why people experience them as fixed even though they started as demand behavior.

   03 What it does to you Load factor is the master metric

   Load factor is the bridge between kW and kWh. It tells you, out of all the kilowatt-hours you could have pushed through the meter at your recorded peak demand, how many you actually used. A low load factor means high peaks relative to average use. A high load factor means you use the capacity you ask for consistently.

   Five steps

   Calculate load factor from your bill

   1. 1 Find your billing demand in kilowatts. Example on the show: one thousand kW. 1,000 kW
   2. 2 Find the number of days in the billing period. It might be as few as twenty-eight or as many as thirty-two. 28 days
   3. 3 Multiply billing kW by days, then by twenty-four hours. That gives you the total potential kilowatt-hours at peak demand. 24 hours
   4. 4 Find your actual metered kilowatt-hours for the period.
   5. 5 Divide actual kWh by potential kWh. Multiply by one hundred. That is your load factor as a percentage.

   Potential kWh at peak demand

   1,000 kWx32 daysx24 hours = 1,000 kW

   Multiply billing demand by days and hours in a day to get the ceiling your actual kWh will be measured against.
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2. 03 What it does to you Load factor is the master metric

   Load factor is the bridge between kW and kWh. It tells you, out of all the kilowatt-hours you could have pushed through the meter at your recorded peak demand, how many you actually used. A low load factor means high peaks relative to average use. A high load factor means you use the capacity you ask for consistently.

   Five steps

   Calculate load factor from your bill

   1. 1 Find your billing demand in kilowatts. Example on the show: one thousand kW. 1,000 kW
   2. 2 Find the number of days in the billing period. It might be as few as twenty-eight or as many as thirty-two. 28 days
   3. 3 Multiply billing kW by days, then by twenty-four hours. That gives you the total potential kilowatt-hours at peak demand. 24 hours
   4. 4 Find your actual metered kilowatt-hours for the period.
   5. 5 Divide actual kWh by potential kWh. Multiply by one hundred. That is your load factor as a percentage.

   Potential kWh at peak demand

   1,000 kWx32 daysx24 hours = 1,000 kW

   Multiply billing demand by days and hours in a day to get the ceiling your actual kWh will be measured against.
   04 The trap The myth that costs money

   Obliterate this

   Fixed good, variable bad. Or the reverse.

   Common belief	What is actually true
   Fixed charges are always bad, variable charges are always good.	Depends on load profile, flexibility, and risk tolerance. Both can help. Both can hurt.
   Reducing kWh is the only way to save.	Demand charges can run thirty to seventy percent of an industrial bill. Managing kW often moves the number more.
   All fixed charges are the same.	Customer fees, demand once set, and infrastructure recovery behave differently and are managed differently.
   Variable rates always mean lower prices.	They also expose you to spikes. Fixed contracts trade upside for certainty.
   My bill is just about how much energy I use.	When and how quickly you use it drives demand charges, TOU, and ratchets.

   Demand charge share of an industrial bill

   Variable structures hurt in the mirror image: high, inflexible consumption exposed to every market swing. Fine if you can pass changes through in your own pricing. Not fine on tight margins with long pricing commitments.

   3
3. 04 The trap The myth that costs money

   Obliterate this

   Fixed good, variable bad. Or the reverse.

   Common belief	What is actually true
   Fixed charges are always bad, variable charges are always good.	Depends on load profile, flexibility, and risk tolerance. Both can help. Both can hurt.
   Reducing kWh is the only way to save.	Demand charges can run thirty to seventy percent of an industrial bill. Managing kW often moves the number more.
   All fixed charges are the same.	Customer fees, demand once set, and infrastructure recovery behave differently and are managed differently.
   Variable rates always mean lower prices.	They also expose you to spikes. Fixed contracts trade upside for certainty.
   My bill is just about how much energy I use.	When and how quickly you use it drives demand charges, TOU, and ratchets.

   Demand charge share of an industrial bill

   Variable structures hurt in the mirror image: high, inflexible consumption exposed to every market swing. Fine if you can pass changes through in your own pricing. Not fine on tight margins with long pricing commitments.

   05 Your leverage Run your data through the actual rates

   General definitions will never beat the specifics of your rate, your data, and a functional equivalent of your utility's rate calculator. You do not win by memorizing generic pros and cons. You win by taking your last twelve to twenty-four months of data, plugging it into the tariffs you qualify for, and seeing what your effective all-in rate and budget pattern would have been under each option.

   1. 1 Pull at least twelve months of bills. Capture total bill, total kWh, billed kW, fixed charges, energy charges, demand charges, and obvious riders. 12 months
   2. 2 Calculate load factor each month using the five steps in Part 3. Look at the pattern over the year.
   3. 3 Calculate what percentage of each bill is fixed plus demand versus purely variable per-kWh items.
   4. 4 Read the tariff sheets for your current rate and every alternative you qualify for. Note ratchets and time-of-use details.
   5. 5 Run last year's data through each candidate rate. Ask what you would have paid and how lumpy the bills would have been.
   6. 6 Layer in risk tolerance. Effective rate first, or narrower budget swings first?

   Not just monitoring

   What to demand from an energy management system

   One

   Actionable information

   Turns live data into the few levers you can pull. Not more graphs.

   Two

   Goal setting

   Targets for load factor, peak demand, and effective cost per kWh, with progress visible.

   Three

   Training

   Translates the structure into your plant, your shifts, your equipment, so operators know what to do differently.

   Four

   Real payback analytics

   Financials tied to your specific utility rate, using the most current approved rate book, not a generic average.
   4
4. 05 Your leverage Run your data through the actual rates

   General definitions will never beat the specifics of your rate, your data, and a functional equivalent of your utility's rate calculator. You do not win by memorizing generic pros and cons. You win by taking your last twelve to twenty-four months of data, plugging it into the tariffs you qualify for, and seeing what your effective all-in rate and budget pattern would have been under each option.

   1. 1 Pull at least twelve months of bills. Capture total bill, total kWh, billed kW, fixed charges, energy charges, demand charges, and obvious riders. 12 months
   2. 2 Calculate load factor each month using the five steps in Part 3. Look at the pattern over the year.
   3. 3 Calculate what percentage of each bill is fixed plus demand versus purely variable per-kWh items.
   4. 4 Read the tariff sheets for your current rate and every alternative you qualify for. Note ratchets and time-of-use details.
   5. 5 Run last year's data through each candidate rate. Ask what you would have paid and how lumpy the bills would have been.
   6. 6 Layer in risk tolerance. Effective rate first, or narrower budget swings first?

   Not just monitoring

   What to demand from an energy management system

   One

   Actionable information

   Turns live data into the few levers you can pull. Not more graphs.

   Two

   Goal setting

   Targets for load factor, peak demand, and effective cost per kWh, with progress visible.

   Three

   Training

   Translates the structure into your plant, your shifts, your equipment, so operators know what to do differently.

   Four

   Real payback analytics

   Financials tied to your specific utility rate, using the most current approved rate book, not a generic average.
   5
5. Decision matrix

   When to act on a rate change

   ✓ Worth running the numbers

   • You have not modeled your last twelve to twenty-four months against alternative tariffs you qualify for.
   • You suspect your rate is outdated because the operation has grown or changed since you were plugged in.
   • You are being pitched a fixed, variable, or blended contract in the next three to six months.
   • You are still paying elevated demand because of a past event that does not reflect how you run today.
   • You do not know your load factor or your fixed-plus-demand share of the bill.

   ✗ Not yet, or not worth it

   • You already model your data against every eligible tariff annually and the numbers do not move.
   • You are locked into a contract with early cancellation fees that outweigh any modeled savings.
   • You have no interval data, no clean twelve months of bills, and no plan to get either.
   • A vendor is promising savings on generic averages instead of your specific rate.
   • Nothing about your load profile, equipment, or shifts has changed and your load factor is already strong.
   Questions for your morning huddle

   1. Over the last twelve months, what percentage of our electric bill has been fixed and demand charges, and what percentage has been variable per-kWh items?
   2. What is our average load factor over the last year, and how would it behave under the alternative rate structures our utility offers?
   3. Do we have any demand ratchet clauses on our current rate, and are we still paying elevated demand because of a past event?
   4. If we modeled last year's data on a power-only rate and a demand-based rate, which one gave us the better combination of effective all-in cost and budget stability?
   The one thing to remember

   Fixed versus variable is not a moral question. The right structure is the one that fits your load factor, your flexibility, and your tolerance for budget swings, tested against your actual data.

   This week, pull twelve months of bills, calculate load factor for each month, and split each bill into fixed-plus-demand versus variable per-kWh. Bring those two numbers to the next huddle before anyone talks about switching rates.

   The Energy Decision Blueprint

   Know if the numbers actually pencil out before you sign anything.

   A written second opinion on the project in front of you, whether that is a rate change, new equipment, or a renewable installation.

   1. 01A short call, to figure out quickly whether we can actually be helpful. If we can't, we'll say so on the spot.
   2. 02We pull the data, your bills, your rate structure, vendor proposals, project specs.
   3. 03You get the verdict in writing: whether the payback will materialize, and the opportunities or risks nobody has raised.

   Get a Blueprint at blueprint.tac-nrg.com Free for Indiana-based operations spending five figures or more a month on electricity. No obligation. You keep the write-up either way.
   6
6. The one thing to remember

   Fixed versus variable is not a moral question. The right structure is the one that fits your load factor, your flexibility, and your tolerance for budget swings, tested against your actual data.

   This week, pull twelve months of bills, calculate load factor for each month, and split each bill into fixed-plus-demand versus variable per-kWh. Bring those two numbers to the next huddle before anyone talks about switching rates.

   The Energy Decision Blueprint

   Know if the numbers actually pencil out before you sign anything.

   A written second opinion on the project in front of you, whether that is a rate change, new equipment, or a renewable installation.

   1. 01A short call, to figure out quickly whether we can actually be helpful. If we can't, we'll say so on the spot.
   2. 02We pull the data, your bills, your rate structure, vendor proposals, project specs.
   3. 03You get the verdict in writing: whether the payback will materialize, and the opportunities or risks nobody has raised.

   Get a Blueprint at blueprint.tac-nrg.com Free for Indiana-based operations spending five figures or more a month on electricity. No obligation. You keep the write-up either way.
   Glossary

   Fixed charges

   Costs that stay the same within a billing period regardless of kWh used. Cover infrastructure, meters, billing systems, and readiness. Include customer charges, some demand charges once set, and administrative fees.

   Variable charges

   Costs that scale with kWh consumed. Include the energy charge itself, fuel adjustment riders, and per-unit taxes. Use more, pay more.

   Demand charge

   Charge based on your highest rate of power draw during a short window in a billing period, measured in kilowatts. Can behave like a fixed cost once set, or longer with a ratchet.

   Load factor

   The ratio of the kWh you actually used to the kWh you could have used at your peak demand across every hour of the billing period. The master metric that links kW and kWh.

   Ratchet

   A rule that holds a percentage of your past peak demand as a floor for future billing. A single spike can hold demand charges elevated for many months.

   Bundled rate

   Rate where the same entity both generates and delivers electricity. Typical in regulated markets.

   Unbundled rate

   Rate where poles and wires are owned by one entity and energy is sold by others through that infrastructure. Typical in deregulated markets.

   Time-of-use

   Rate structure that charges different prices for energy or demand depending on the hour and season. Rewards shifting load away from expensive windows.

   Effective all-in rate

   Total bill divided by total kWh. Folds every fixed, demand, and variable line item into one number that reflects what electricity actually cost you per unit.

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