What is a demand ratchet?
A demand ratchet is a billing method commonly imposed by electric utilities on large commercial or industrial customers. It specifies that the billed demand level in kW be the larger of the actual peak demand for the billing period, or a percentage of the highest peak reached during the previous X months. A typical demand ratchet uses 80% of the peak demand occurring during the previous 11 months as the comparison point. Under this scenario, if your facility experiences a peak demand of 1,000 kW for one hour (or 15 minute interval) you will be billed for a minimum of 800 kW during the next 11 months, even if your actual demand is much lower. Demand ratchets are generally used by utilities to reduce the risks of serving certain types of customers who have potentially large swings in demand during the year—making them pay for the assurance of having the high capacity available when needed.