One 100-watt light bulb burning for 10 hours consumes 1,000 watt-hours or 1 kWh. The entire time it is on, it requires or "demands" 100 watts or 0.1 kW from the utility. That means the utility must have that 0.1 kW ready whenever the customer turns the lamp on.

Similarly, ten 100-watt light bulbs burning for 1 hour consume 1,000 watt-hours or 1 kWh. Note that in both examples, the consumption is 1 kWh, however, look how differently the second situation impacts the utility from a demand perspective. The serving utility must now be prepared to provide ten times as much capacity in response to the "demand" of the 10 light bulbs operating all at once.

If both of these customers are billed for their consumption only, both will get the same bill for 1 kWh of energy. And that is the way most residential customers are billed. But in the second case, the utility has to have 10 times more generating capacity to provide the second customer's brief high demand for power.

Commercial and industrial customers are often billed for their hourly consumption patterns and their peak demand for energy. These customers often have special meters that measure both, unlike residential meters that just record total consumption in a time period, usually one month.

 

So, you might ask, "why doesn't the utility bill all customers for demand and consumption?" Seems only fair. And it would be, but the fact is that most homes have a similar demand profile and the meters capable of measuring both demand and consumption are far too expensive to install on every home. For this reason, most residential customers are billed only by consumption. As the cost of metering drops, and as automatic metering advances, we may see increased use of demand billing for homes.

Another way of understanding demand and consumption is with a "filling the bucket" analogy. Suppose you want to fill a five gallon bucket with water. You can use an inexpensive hose connection that provides one gallon per minute , and the bucket will fill in five minutes. Or you can find a larger, more expensive faucet that provides five gallons per minute, and the bucket will fill in just one minute. The flow rate is the equivalent to demand, and the five gallons of water are equivalent to consumption. In this example, filling both buckets has the same "consumption" but very different "demands."

The same is true of electricity. While you may be able to accomplish the same task by operating a small wattage appliance for many hours as operating an appliance of higher wattage for just a few hours, the higher wattage appliance will demand more of  the utility. In our analogy, using the larger pipe costs more. If time is of the essence, it might be worth having the more expensive high flow rate or wattage. This is why utilities often charge some customers for both demand and consumption. A customer that sets a high demand requires more services from the utility--additional generating plant capacity, and more expense in lines, transformers and substation equipment.