The Demand Ratchet: How Last Summer's Production Spike Is Still Costing You Money Today.

The demand ratchet is one of the most consequential — and least understood — provisions in industrial electricity tariffs. A ratchet clause establishes a minimum billing demand equal to a percentage (typically 80-90%) of the highest measured demand over the preceding 12 months.

What this means in practice: if your facility had an exceptional production run last August that pushed peak demand to 2,000 kW for a single 15-minute interval, you may be paying for a minimum billing demand of 1,600-1,800 kW every month for the next year — regardless of your actual demand.

For manufacturing operations with variable production schedules, seasonal demand spikes, or equipment startups associated with new product runs, ratchet clauses can inflate the effective electricity cost by 15-30% for months following the peak event.

The audit questions are: Was the ratchet peak event legitimate? Was the demand measurement accurate during the peak interval? Does the tariff allow any provisions for anomalous peaks? And is the ratchet calculation itself being applied correctly? We have found significant ratchet recovery opportunities in manufacturing accounts where one or more of these questions had a correctable answer.