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How TDU Charges Work in Small Business Electricity Plans

Commercial TDU charges in the ERCOT region are determined by your rate category, which is assigned based on your energy consumption profile and type of power meter:

• Secondary Service Less than 10 kW
• Secondary Service Greater than 10 kW
• Primary Service
• Lighting Service

Unlike residential TDU charges, which are generally smaller than energy charges, commercial TDU charges can represent more than 50% of a company’s power bill. Small businesses normally fall into one of the first two categories, which are subject to the following charges:
Secondary Service Less than 10 kW (TNMP – Less than 5 kW)

Secondary Service Less than 10 kW (TNMP – Less than 5 kW)

Secondary Service Greater than 10 kW (TNMP – Greater than 5 kW)

As you can see in the tables above, businesses with a peak demand of over 10 kW (5 kW in the case of TNMP) pay much lower delivery charges per kWh. However, the fixed monthly charges become much higher, and demand charges are added to the bill.

TDU charges are normally updated twice per year in March and September, with approval from the Public Utility Commission of Texas (PUCT). This applies to both residential and business electricity rates. Note that TDU charges are updated for all electricity consumers, even if you have a fixed-rate electricity plan.

What Are Demand Charges in Texas Small Business Electricity Plans?

One of the most important differences between residential and commercial electricity plans is the presence of demand charges. Residential consumers are only billed for the total amount of energy used, but many businesses are also billed for the demand caused by the grid.

Here is a simplified example that explains the concept:

• Assume two companies both use 100,000 kWh per month.
• However, one company reaches power consumption peaks of 500 kW, while the other company only reaches 250 kW.
• Both companies use the same amount of electricity, but the first company places twice as much demand on the grid.

For this reason, the company with a 500 kW consumption peak can expect higher demand charges.

In Texas, demand charges for businesses are calculated each year based on the concept of Four Coincident Peaks (4CP). ERCOT identifies the four hours when the grid experiences the highest demand during each of the four summer months: June, July, August, and September. The demand charges paid by your company will be determined by your measured demand during those four hourly intervals of high consumption (4CP).

Nobody knows when the Four Coincident Peaks will happen each summer, but ERCOT publishes alerts when a potential 4CP event is detected. If your company can reduce its kilowatt demand during these critical hours, you may achieve a drastic reduction of demand charges for an entire year (until next summer when ERCOT measures a new set of 4CP hours).

Demand Charges in Business Power Bills: A Quick Example

The TDU tariff category can have a major impact on business power bills. Here is a simplified example that demonstrates how this works:

• Assume two small businesses are consuming 3,500 kWh per month with an energy charge of 9 cents/kWh, in the Oncor service territory.
• However, Company #1 has a peak demand of 8 kW while Company #2 reaches 16 kW.

In this case, both companies get the same energy charge of $315 ($0.09 x 3,500 kWh), but their TDU charges are very different.

Company #1 has a peak demand of 8 kW, which means there is a fixed fee of $6.87 and a variable fee of 3.7984 cents/kWh. The total TDU charge is $139.81, and the total amount billed after adding the energy charge is $454.81.

Company #2 has a peak demand of 16 kW, which means there is a fixed fee of $32.43 and two variable fees: 0.0642 cents/kWh and $10.332973/kW. The total TDU charge is $200.00, and the total amount billed is $515.00.

Note how the power bill increases by over $60 due to TDU charges for Company #2, even when both have the same consumption and energy price. Residential consumers only need to watch their kWh usage, but peak demand is also important for businesses.