What is a demand charge in electrical services?

A demand charge is a specific component of a customer's utility bill, which reflects the maximum amount of electricity that the customer draws from the grid during a specified period, typically measured in kilowatts (kW). This charge is based on the peak demand a customer places on the electrical system and is designed to cover the utility's costs associated with capacity and infrastructure needed to supply that demand.

For instance, if a business uses a high amount of power for limited periods, the demand charge accounts for the need for the utility to be prepared to generate and deliver enough power to meet that peak usage, regardless of the actual energy consumption over time. This is vital for utilities to manage grid stability and prepare for fluctuations in energy use.

The other choices describe different aspects of utility billing or energy transactions. Off-peak fees pertain to how much is charged for energy consumption during less busy times, and taxes relate to overall consumption or environmental impact, while exceeding efficiency levels could lead to penalties or bonuses more focused on energy conservation rather than demand. Therefore, the demand charge specifically targets the aspect of customer demand that utilities must prepare for, making the first option the correct definition.