A utility tariff schedule is a legal document that describes exactly how your building will be charged for electricity. It's also, typically, 15–40 pages of regulatory language that most facilities managers have never read cover to cover. Embedded in that document are the specific rules that determine what you pay — and the rules that a demand management strategy needs to be designed around.
This post walks through the sections of a commercial utility rate schedule that matter most for demand charge management, what the key terms mean, and what to extract from each section before designing any demand-reduction strategy. The specifics vary by utility, but the structure is consistent enough that this framework applies to most commercial accounts in the US.
Finding Your Rate Class
Most commercial utilities have multiple rate schedules for commercial accounts — differentiated by service voltage, monthly peak demand level, or contract terms. The first step is confirming which schedule your building is actually on. This is usually visible on your monthly bill as a rate code or tariff designation (examples: "GS-D," "LP-1," "C2-TOU," "LG-ND").
Commercial rate classes are generally tiered by demand level:
- Small commercial (typically demand <50 kW): simplified rate with minimal demand charge, sometimes no demand charge at all
- Medium commercial (50–500 kW): full demand charge structure, often with TOU energy pricing
- Large commercial / light industrial (500 kW–5 MW): separate transmission-level rate structures, often with coincident peak pricing
Most commercial office, retail, and institutional buildings with 20,000–500,000 sq ft fall in the medium commercial bracket. If your building is near a threshold boundary — say, regularly peaking at 480–520 kW — it may be worth modeling whether a rate class change would improve your economics, which requires understanding both your current schedule and the alternative schedules your utility offers.
The Demand Charge Section: What to Extract
The demand charge section of a tariff schedule defines how the demand charge is calculated. Extract these specific items:
Measurement interval: Most tariffs specify 15-minute demand intervals; some industrial tariffs use 30-minute or even hourly intervals. Your demand management strategy should be calibrated to the actual measurement interval — a demand event that spans 8 minutes is more costly under a 15-minute averaging window than under a 30-minute window.
On-peak vs. off-peak demand charges: Some tariffs have a single demand charge rate that applies regardless of when the peak demand event occurs. Others have separate on-peak demand charge rates that apply only to peak demand events during defined on-peak hours, with lower or zero off-peak demand charges. If your tariff has separate on-peak and off-peak demand charge rates, the economic value of shifting demand events from on-peak to off-peak hours is the difference between those two rates — which can be $5–15/kW/month.
Minimum billing demand: Many tariffs specify a minimum billing demand — typically expressed as a percentage of maximum billing demand from prior months (commonly 80–90%) or as a flat kW floor. This is the ratchet clause. A ratchet means that even if you successfully reduce this month's actual peak demand, your demand charge is floored at some fraction of past peak demand. The ratchet clause significantly changes the economics of demand charge reduction — if you have a 12-month ratchet at 80%, reducing your peak demand this month by 100 kW only reduces your demand charge by 20% of the potential savings (80 kW still counts through the ratchet). Knowing whether a ratchet applies, and its lookback period, is essential for calculating realistic demand charge savings potential.
TOU Energy Pricing: The On-Peak and Off-Peak Windows
Time-of-use energy pricing defines separate energy charge rates ($/kWh) that apply during different periods of the day. The on-peak energy period is when the utility is most congested and energy prices are highest; the off-peak period is when demand is low and prices are lower.
For demand management planning, the relevant questions from the TOU section are:
- What hours define the on-peak period? (Common examples: 8 AM–9 PM weekdays; 9 AM–8 PM weekdays; different hours in summer vs. winter)
- Are weekends included in on-peak pricing? (Most commercial tariffs exempt weekends and holidays from on-peak rates)
- What is the on-peak vs. off-peak energy rate differential? (Midwest commercial tariffs commonly show $0.18–0.28/kWh on-peak vs. $0.07–0.12/kWh off-peak)
- Is there a seasonal component — different on-peak windows or rates in summer vs. winter?
The on-peak energy window defines when pre-conditioning should be completed. If the on-peak window opens at 9 AM, HVAC pre-conditioning should finish before 9 AM — meaning all high-demand staging happens during off-peak hours when both the energy rate and the demand charge rate are lower.
Coincident Peak and Critical Peak Programs
Some utilities — particularly those serving territories participating in organized wholesale electricity markets like MISO or SPP — have coincident peak demand charge provisions. A coincident peak charge applies based not on your building's individual peak demand, but on your demand level during specific system-wide peak hours designated by the ISO or utility. These coincident peak hours are often identified retroactively (e.g., the 5 highest-demand hours in the prior month) or announced with short notice during high-stress grid events.
Coincident peak charges can be large — $20–60/kW or higher — because they're designed to recover the utility's capacity cost contribution that your building creates at the system peak, not just your individual peak. They represent a different optimization target: instead of managing your own building's peak demand, you're managing your demand during the grid's peak demand hours.
Critical peak pricing (CPP) and demand response programs work similarly. CPP events are declared by the utility on high-stress days (extreme summer heat events, equipment outages), typically with 24-hour advance notice, and energy rates during CPP events can be $1.00–3.00/kWh — 10–20x normal on-peak rates. Buildings that participate in CPP programs accept these events in exchange for a year-round rate discount. Managing CPP event response effectively — pre-conditioning before the event window, reducing HVAC staging during the event — requires exactly the kind of day-ahead thermal demand forecast that tells you how much thermal buffer the building can carry into the event window.
We're not saying every building should opt into coincident peak or CPP programs — the economics depend heavily on your building's thermal flexibility and operational constraints. We're saying that if you are on one of these programs, the demand management strategy needs to be designed around grid peak hours, not just your own building's peak hours.
Tariff Changes and Review Cadence
Utility tariffs are regulatory documents that change — sometimes substantially — on annual or biennial cycles through the rate case process before state public utility commissions. A TOU structure that defines on-peak hours as 9 AM–9 PM today may be modified in a subsequent rate case to reflect updated grid conditions. Demand charge rates, ratchet percentages, and critical peak pricing provisions are all subject to regulatory revision.
For demand management purposes, this means that any analysis based on current tariff economics should be revisited whenever a rate case affects your utility. A demand charge reduction strategy calibrated to current rates may become more or less economically compelling after a rate case depending on which direction the rates move — and a ratchet clause that was 80% might become 90%, changing the payback math for demand reduction investments.
Most state utility commission websites publish dockets for pending rate cases, and utilities are required to provide advance notice to commercial customers of material rate changes. Subscribing to your utility's commercial customer newsletter or periodic tariff filing notifications ensures you're aware of changes before they take effect — rather than discovering them when the first bill under the new rates arrives.