For manufacturers, electricity is a necessary part of daily operations. From running production equipment to powering heating, cooling and compressed air systems, energy keeps facilities operating.

But when the monthly electric bill arrives, how many manufacturers understand exactly what they're paying for?

While many facilities monitor their total electricity consumption, another factor can significantly influence their costs: electrical demand.

Understanding kW vs. kWh

Two measurements play an important role in industrial electricity costs: kilowatts (kW) and kilowatt-hours (kWh). Although they are related, they measure different things.

Think of it like driving a vehicle. Your speedometer shows how fast you're traveling at a particular moment, much like kW measures the rate of electricity use. Your odometer tracks the distance you've traveled, similar to how kWh measures total energy consumption.

Both measurements matter, but they can affect an industrial electric bill differently. Manufacturers may be paying not only for the total electricity they consume but also for how much power they require during periods of high demand.

How Utilities Measure Electrical Demand

Electrical demand is generally measured over a defined interval rather than a single instant. Depending on the utility and rate structure, these intervals may be 15 or 30 minutes.

Two common measurement methods include:

The highest measured interval demand during a billing period can determine the demand charges a facility pays, depending on its utility agreement.

This means a relatively short period of unusually high electricity use can affect costs beyond the time the equipment was actually operating at that level.

How One Peak Can Affect the Entire Month

Consider a manufacturing facility operating at a steady electrical load of 100 kW. During a 15-minute interval, a piece of heavy equipment is activated, temporarily increasing the facility's power demand.

Although the facility reaches 600 kW for only five minutes, the demand measured across the full 15-minute interval averages approximately 266.7 kW.

If that represents the highest applicable demand interval for the billing period, it can influence the facility's demand charges for the entire month.

Note: This example is illustrative. Actual charges depend on the utility's rate structure, billing intervals and contract provisions.

Why Your Utility Agreement Matters

Some industrial utility agreements include demand ratchet provisions.

A demand ratchet may establish a minimum billing demand based on a percentage of a previous peak demand, even when current electricity usage is lower.

For manufacturers operating under these agreements, a particularly high-demand month could influence billing calculations in subsequent months.

Ratchet percentages and lookback periods vary by utility and rate schedule, making it important to understand the specific terms that apply to your facility.

Understanding these details can help manufacturers identify where their costs originate and where operational adjustments may have the greatest impact.

Turning Electrical Data Into Operational Insight

Managing electricity costs begins with visibility.

By reviewing utility bills, monitoring peak demand and examining how equipment operates throughout the day, manufacturers can begin identifying patterns that may otherwise go unnoticed.

For example, multiple pieces of energy-intensive equipment starting or running simultaneously may create higher demand than if those operations were coordinated differently.

Recognizing when these patterns occur creates opportunities to evaluate equipment scheduling, startup sequences and other operational decisions.

That knowledge supports better decision-making, more predictable energy costs and stronger overall operational efficiency.

What's Next in the Manufacturing Efficiency Series?

Understanding electrical demand is an important first step. The next challenge is determining what manufacturers can do to manage it.

In Part 3, we'll explore practical strategies for reducing peak electrical demand, improving energy visibility and controlling costs without sacrificing production.

Missed Part 1? Read Driven by Data: Rethinking Operational Efficiency in Manufacturing.