Electric terminology can be confusing if you’re just starting out. You probably have lots of questions, but let’s start with the basics. Energy and Demand are the two most common forms of measurement used in the electric industry when quantifying power. Although we can’t live a day in the modern world without electricity, the terminology can still be confusing. When speaking about energy, it’s important that you understand the difference between energy and demand. So let’s get to it.


Energy is used to describe the power delivered to a customer by the utility over time. It is measured as the accumulated power usage of the customer and is described with the billing unit kilowatt-hour (kWh). Using cars as an example, Energy is similar to an odometer. As a customer uses electricity, their meter is recording the amount of electricity being used. The total for the billing period, or year, is the customer’s Energy Usage.

How is energy measured?

Energy = watts x time

The common units of measurement for Energy are:

  •    Kilowatt – 1-kilowatt-hour (kWh) is equal to 1,000 watts (1 kW) sustained for 1 hour
  •    Megawatt – 1-megawatt-hour (MWh) is equal to 1,000,000 watts (1 MW) sustained for 1 hour
  •    Gigawatt – 1-gigawatt hour (GWh) is equal to 1,000,000,000 watts (1 GW) sustained for 1 hour
  •    Terrawatt – 1-terawatt hour (TWh) is equal to 1,000,000,000,000 watts (1 TW) sustained for 1 hour


Demand is the maximum usage rate of the customer and is measured in kilowatts (kW). In order to explain this concept more clearly, let’s look at a similar situation with vehicles as an example. As a race car drives around a track, the speed at which the car is moving will go up and down as the car maneuvers around turns and shoots down straightaways. The maximum speed at which the car is able to reach in a lap is what utilities measure to determine demand or the peak usage for a given period of time. In practice, this measurement is a little more complex as the average flow of electricity is recorded in 15-minute increments and the Demand is considered the highest 15-minute interval during the billing period.

As we know, every user is paying for the Energy they use, but Demand can also affect the rate a customer can receive from a third-party supplier or can be a line item charge found on the bill of larger users.

If a customer uses a large amount of electricity in a short period of time, thus creating a high spike in their electricity, Demand can make up a large portion of their bill in comparison to their Energy Usage during the billing period. The example below shows this type of usage:

  1. A customer runs a 50 horsepower (hp) irrigation pump for only five hours during July 1:

Demand Charge = 50 hp x .746 kW/hp x $8.03/kW = $299.52

Energy Charge = 50 hp x .746 kW/hp x 5 Hr x $0.034/kWh = $6.34

In contrast, if a customer has a consistently high Demand that corresponds to a large use of Energy, the Demand charge could make up a smaller portion of the total bill, even with the consistently high Demand as seen in the example below:

  1. The same customer runs a 50 hp irrigation pump constantly through the entire month of July:

Demand Charge = 50 hp x .746 kW/hp x $8.03/KW = $299.52

Energy Charge = 50 hp x .746 kW/hp x 744 Hr x $0.034/kWh = $943.54

As you can see, Customer 2 had high Demand throughout the entire month of July, but still paid the same Demand charge as Customer 1; even though Customer 1 had their equally high Demand only last 5 days.

Example by NorthWestern Energy

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