Intech Blog

Demand Charges and Power Factor: Why Your Bill Keeps Climbing

Published September 4, 2026 · Intech Corporation · Twin Cities, MN

A demand charge is a separate fee on your commercial electric bill based on the single highest 15-minute burst of power your building pulled during the billing month, not just how much energy you used overall. It's billed on top of your regular per-kWh energy charge, and on a lot of commercial accounts it ends up being a bigger line item than the energy itself. Pair that with a low power factor, which happens when motors, compressors, and other inductive equipment make your building draw more current than it actually needs to do useful work, and you've got two charges most business owners never question but that a good electrician can actually do something about.

If your Twin Cities business has watched its electric bill creep up the last year or two and can't fully explain why from usage alone, you're not imagining it. Minnesota's grid is under real strain right now, driven partly by <a>the state's data center boom</a> and the industrial and commercial load growth that comes with it. That pressure shows up on ratepayers' bills as utilities invest in new generation, transmission upgrades, and rate structures designed to push big power users toward off-peak hours, similar to the shift already happening with Xcel's time-of-use rates on the residential side.

For a lot of commercial and light-industrial accounts, though, the bigger lever isn't the time of day you use power, it's how spiky your usage is and how efficiently your equipment uses it. That's exactly what demand charges and power factor penalties are built to measure, and it's exactly the kind of problem we can walk through with you at Intech Corporation.

What a Demand Charge Actually Measures

Your utility meter doesn't just track total kilowatt-hours over the month. It also records the highest average power draw over a short window, usuallyminutes, at any point in the billing period. That peak number, multiplied by a dollar-per-kW rate, becomes your demand charge, and it shows up whether that spike lasted five minutes or the whole window.

Here's why that matters more than it sounds like it should: a building that runs a steady, predictable load all month can end up paying less in demand charges than a building that uses the same total energy but does it in short, sharp bursts, like every rooftop unit and the walk-in cooler compressor kicking on at once on a hot afternoon. Across a lot of commercial rate structures, demand charges make up a substantial share of the total bill, in some cases rivaling or exceeding the energy charge itself. The exact split depends heavily on your utility, rate class, and how your equipment actually runs, so the only way to know your real number is to look at your own bill and your own load profile.

Power Factor: The Charge That Hides in Plain Sight

Power factor is a measure of how efficiently your building converts the power the utility delivers into actual useful work. A perfect power factor is 1.0. Motors, older HVAC compressors, welders, and other inductive equipment pull current that doesn't do useful work, it just moves back and forth between the load and the utility, and that drags your power factor down, sometimes below 0.90.

A lot of business owners never notice this one because their meter display shows kilowatts, not kilovolt-amps, and the low power factor is baked quietly into a higher effective demand charge or a separate rider rather than a clearly labeled line item. Facilities with a lot of older motors, air compressors, or process equipment are the most common culprits, which is why this shows up so often in manufacturing, warehousing, and mechanical-heavy buildings.

Why This Is Worth Fixing Now

Correcting power factor with a properly sized capacitor bank is one of the few electrical costs a business can eliminate with a one-time capital investment rather than an ongoing contract renegotiation. It also frees up capacity on your existing service and switchgear, which matters if you're planning an expansion, adding equipment power for new machinery, or eyeing an EV charger install for a fleet or employee lot down the road.

Demand charges take a different kind of fix. Since they're driven by your single worst 15-minute stretch each month, the goal is smoothing out that peak rather than reducing total energy use. That's a job for load scheduling, staged equipment startup, and in some cases battery storage to shave the top off a spike, the same kind of demand-management thinking we've written about for home battery backup applied at commercial scale.

Practical Steps for a Commercial Building

You don't need to overhaul your whole electrical system to start chipping away at this. A few things worth doing:

• Pull your last twelve months of bills and actually look at the demand charge and power factor lines separately from the energy charge, so you know which one is really driving the cost.
• Have staggered start-up timers or controls installed on large equipment like rooftop units, compressors, and elevators so they don't all hit their inrush current at the same moment.
• Get your motors and inductive equipment evaluated for power factor correction, especially in older buildings that still run legacy motors without variable frequency drives, something our industrial controls and motor controls team handles regularly.
• Use infrared inspection as part of routine maintenance, since failing motor windings and loose connections often show up as heat and inefficiency well before they show up as a breakdown.
• Ask about a broader load study before committing capital to solar, storage, or a panel upgrade, since demand and power factor data should drive the sizing, not guesswork.

Where a Licensed Electrician Comes In

Sizing and installing a capacitor bank isn't a DIY project. Get it wrong and you can overcorrect, which creates its own power quality problems and can actually damage sensitive equipment. It also needs to tie into your building's electrical distribution correctly and meet code for overcurrent protection and switching.

This is exactly the kind of assessment we do at Intech: pull your utility data, walk your equipment, and figure out whether your bill is really a demand problem, a power factor problem, or both, before recommending a fix. If you're already on a preventative maintenance schedule with us, this is often something we can fold into that same visit.