A demand charge covers the costs associated with maintaining sufficient electrical distribution infrastructure at all times to meet each customer's highest demand for energy. It is based on the greatest amount of electricity used by the customer in any 15-30 minute period during the billing cycle.

The demand charge is expressed as a dollar per kilowatt (kW) rate and is applied to the customer's maximum kW demand, or the highest rate at which the customer required energy during the month. Most utilities customarily average a customer's instantaneous demands over 15-30 minute intervals throughout the month. Consequently, a customer's monthly demand is typically the highest 15-30 minutes of energy use during a billing cycle.