Why is Managing Your Business’ Demand Important?

Your business requires energy to operate. The amount of energy your business requires at any point in time is known in the energy world as “demand”. In this blog, we’ll explain why demand is important and how you could save on your energy bill by managing it.

Why is demand important?

Demand charges have the largest effect on small business customers. These charges define the tariff code or rate class that your business is assigned by your local utility. Each tariff code or rate class has different cost structures that determine your transmission and distribution prices, which make up 20-40% of your energy bill. You can find tariff code/rate class information on your utility’s website.

What can I do to manage my demand?

There are practices you can do each day to help manage your demand. For example, pay attention to how and when you operate equipment, appliances and lighting in your business. It doesn’t cost you anything to turn off equipment or lights that are not in use and can help you avoid peaking demand by not turning on all equipment, appliances and lighting at the same time.

Another way to reduce demand is to retrofit lighting, including ballasts, with LED lights. LED lighting uses less energy to operate than incandescent lighting which reduces your demand. In addition, LED lights can be brighter than incandescent bulbs and can reduce the number of lights you need to maintain the same coverage.

Finally, you can implement energy efficiency devices like smart thermostats, switches and outlets that help manage demand. For example, unlike traditional outlets that still use energy when devices are off, smart outlets act as if the device is unplugged, thus using zero energy while also allowing you to set a timeframe you’d like to outlet to provide power.

Managing your demand is always important, however it is most important on five peak days in the summer when demand on the electricity grid is highest. If you are able to reduce your demand on those days, it can help lower your Peak Load Contribution (PLC) tag, which is a large component of your energy bill. Your PLC tag is determined by your local utility by averaging your demand during those five days.

Are there energy plans that reward me for managing my demand? How can AEP Energy help?

While there are things you can do, such as practicing energy efficient habits, that can reduce your demand on any of AEP Energy’s electricity plans, our True Cost Plan is best suited for businesses that wish to manage their demand. Unlike fixed price plans, our True Cost Plan allows you to lock in your energy rate and pass through the demand and capacity components of your bill. This ensures you have direct control over your business’ demand.

AEP Energy makes it easy for our customers to know when to reduce their demand. By signing up for our complementary PeakAdvisory® service, you’ll get a notification letting you know to curtail your demand before a peak day is forecasted to occur. There’s no penalty if you aren’t able to do so, but if you can reduce your demand your PLC tag could improve.


We understand that demand, tariff codes and PLC tags can be confusing topics. We’re happy to answer any questions you may have. If you’re already an AEP Energy customer, contact our Account Management team at 1-888-924-7111. If you’d like to get started with AEP Energy, contact our Small Business Energy Consultants at 1-877-648-1936.

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