Before you get on the roller coaster of LADWP bills, understand how charges are calculated

Demand charges are like speeding tickets for commercial buildings. Commercial rates charge you for consumption (mileage) and the power draw of the building (speed).

For most of California, commercial demand charges are calculated monthly. Have a bad month? Don’t worry, the slate is wiped clean the next billing month. Buildings in LADWP territory are not so lucky. The City of Angels hold its grudges for a full year.

So much for forgive and forget.

In LADWP summer months–June to September–demand charges are typically 40% of your utility bill. If you are responsible with managing energy for LADWP buildings, its worth understanding the math.

This monthly charge is 3X more expensive from June to September!

Every month you pay $4.56 per kW for the highest 15-minute interval reading from the last 12 months. This is your annual demand charge.

Every month you also pay a charge per kW for the highest reading from that billing period month, and this charge varies by billing period month: June thru Sept = $13.00/kW, Oct thru May = $4.30/kW. This is a monthly demand charge, and much more like what you would experience with SCE or PG&E.

Let’s explore these inputs with a simplified example:*

Imagine in July of 2014 your building set a peak of 1,000kW, and the highest reading in the previous 12 months clocked in at 1050 kW (from June 2014). The demand charge for July would be:

$4.56 times 1,050 + $13.00 times 1,000 = $4,788 + $13,000 = $17,788

In August you set a peak of 900kW. The demand charge for August would be:

$4.56 times 1,050 + $13.00 times 900 = $4,788 + $11,700 = $16,488

In October your peak was 900kW. The demand charge for October would be:

$4.56 time 1,050 + $4.30 times 900 = $4,788 + $3,870 = $8,658

Should the August 2014 peak demand level of 900kW persist, and if your July 2015 peak demand is 900 kW, the demand charge for July 2015 would be:

$4.56 times 900 + $13.00 times 900 = $4,104 + $11,700) = $15,804

As you can see, the effects of a high demand reading are long lasting. Just one exceptionally high 15 minute demand spike will end up costing you for one year. Put differently, if you’re not managing demand in your building, you’re not managing 40% of your spend.

The good news? Gridium tools are now available and in use by the biggest building teams in LADWP territory. Let us know if you you’d like to see them in action at your properties.

* In this example, we’ve ignored the difference between high-peak and low-peak rates during the summer season

About Millen Paschich

Millen began his career at Cambridge Associates, trained in finance at SMU, and has an MBA from UCLA. Talk to him about bicycling, business, and green chile burritos.

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