What does demand pay for?

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Tim McCarthy
Sioux Valley Energy 
General Manager/
Chief Executive Officer

Last month we announced the implementation of a demand charge for residential and general service members starting in 2027. We understand that electrical billing terms can be complicated. The words energy, demand, and basic service may leave you wondering what those line items pay for; how they are calculated; and what you can do to lower your electric bill.

The explanation really starts with how electricity gets to your home or business. 

The journey of electricity starts with power generation. Think of a super powerful magnet spinning at break-neck speeds—that’s what is producing the electrons that are needed for electricity to work. Deep inside power plants are large turbines that are turned in different ways—falling water at hydroelectric dams; burning coal or natural gas to create steam that moves the turbine, or rotating blades of a wind tower. Solar works differently by using material that is activated by sunlight.

Electricity can’t be affordably stored – it has to be transported at the exact time it’s produced and that’s where the high voltage transmission system comes into play. Those huge power lines act as highways for electricity, bringing it to substations where the voltage is adjusted down a step… those electrons are then transported even further on the smaller distribution lines to transformers outside your home or business which step the voltage down again, making it suitable for appliances and electronic devices.

Now think of all that equipment from the power generating plant to the transformer outside your home—there is an incredible amount of infrastructure needed to power your lives. 

Cooperatives like Sioux Valley Energy and its power suppliers have to build an electric grid capable of supporting the maximum possible demand at any given time. So, think of every piece of equipment, appliance, computer, motor, etc. being turned on at the exact same time. We have to make sure we can support that entire electric load on our system all at once. Additional and larger equipment means a bigger investment, which impacts electric rates.

Sioux Valley Energy residential and general service members have always paid for demand, but it was blended into the energy (kWh) and basic service charges. As costs rise and demand increases, it has become imperative that we break out demand charges for each individual member to better align with how we are charged by our power suppliers. Commercial and large power members have been paying for a specific demand charge for a long time. Approximately half of the Cooperative’s power bill from its suppliers comes from demand charges. In fact, we paid more than $32 million dollars in demand last year. Depending on the month, between 50 and 70 percent of those demand costs can be attributed to our residential, rural residential, and general service members.

To learn more about the residential and general service demand charge that will be implemented in 2027, go to our Demand website.

 

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