# Energy cost allocation

Assigning electricity costs to jobs, equipment, or departments using measured consumption, tariff-specific demand, and explicit shared-cost policies.

Reviewed: 2026-11-01

Tags: costing, energy, allocation, electricity

## Purpose and boundary

Allocate energy, demand and fixed service charges on their own bases. ACCA explains the distinction between cost pools and the drivers used to assign them. [ACCA activity-based costing](https://www.accaglobal.com/gb/en/student/exam-support-resources/fundamentals-exams-study-resources/f5/technical-articles/ABC.html)

The example bill totals **$1,700**: $1,000 for 10,000 kWh, $600 for 50 kW billing demand and $100 for fixed service. The demand allocation uses each load’s contribution at the site peak interval. The resulting $0.17/kWh blended recovery rate does not predict the cost of an extra kWh or a new peak.

Record the tariff, billing period, meter boundary, currency and purpose. Identify taxes, adjustments and other charges included in the pool.

## kW, kWh, and the bill

**kW measures power; kWh measures energy.** A constant 12 kW load operating for 2.5 hours uses 30 kWh. For varying loads, sum interval energy or integrate power over time:

```text
Energy (kWh) = sum[average interval power (kW) × interval duration (h)]
Consumption cost = sum[interval energy (kWh) × applicable energy rate ($/kWh)]
```

SDG&E distinguishes consumption from demand and explains that business costs can depend on quantity, timing, and demand. A monthly kWh total cannot establish the highest interval demand or reveal when energy was consumed. Nameplate power multiplied by scheduled hours is an estimate, not a meter reading. [SDG&E understanding demand](https://www.sdge.com/businesses/pricing-plans/understanding-demand)

SCE's business TOU guide describes consumption charges in kWh and demand charges based on maximum kW, including a 15-minute interval basis and separate facilities-related/time-related components. These definitions illustrate why demand needs a separate pool; they are not a universal interval, charge, or seasonal schedule. Use the customer's applicable tariff and effective billing dates, including any minimums or ratchets. [SCE business TOU guide](https://www.sce.com/sites/default/files/custom-files/PDF_Files/Business/TOU_Business_Guide_072025_Accessible.pdf)

## Measurement before allocation

GSA distinguishes a main meter covering the property from submeters covering areas, systems, circuits, or individual devices. That hierarchy supports cost allocation and helps locate otherwise hidden usage. A machine meter does not automatically include its share of compressed air, extraction, cooling, or lighting supplied elsewhere. Define those boundaries before comparing machines or costing jobs. [GSA submetering guidance](https://www.gsa.gov/governmentwide-initiatives/federal-highperformance-buildings/highperformance-building-clearinghouse/energy/submetering)

The Australian government's metering guidance emphasizes appropriate accuracy, resolution, and logging interval; it also describes using meter data to validate bills and identify consumption outside operating times. For an allocation, align meter dates and timestamps with the bill and label missing or estimated readings. Match the interval needed for the billing question: hourly summaries can hide a shorter demand peak. Investigate the difference between the main meter and summed submeters rather than silently treating every difference as production usage. [Metering and monitoring](https://www.energy.gov.au/business/equipment-guides/metering-and-monitoring)

DOE's FEMP provides guidance on using metered data for evaluations and energy-management systems. Its resources are written for federal facilities; their measurement approach can inform an industrial model without making federal agency requirements universal obligations for a factory. [DOE metering resources](https://www.energy.gov/cmei/femp/metering-federal-buildings)

## Choose separate cost drivers

Directly assign identifiable consumption where practical, using the correct time-dependent rate. Put shared utilities in named pools and choose a defensible usage driver. Machine hours can be a proxy where loads are comparable; floor area may be a stated policy for building services, but neither measures every machine's electricity use. Document the reason for the driver and distinguish measured values from estimates. This follows ACCA's pool-and-driver approach rather than assuming every overhead has one common cause. [ACCA allocation method](https://www.accaglobal.com/gb/en/student/exam-support-resources/fundamentals-exams-study-resources/f5/technical-articles/ABC.html)

For a demand pool, one possible internal policy is contribution to the site's billing peak interval. Sum each department's average kW **during that same interval**; summing each department's separate monthly maximum can exceed the site's actual peak. Coincident-peak allocation is a policy choice, not a claim that the utility separately billed each department. It also does not capture every possible ratchet or multiple demand component.

## Reconciled monthly example

**Original illustrative assumptions:** no TOU variation, taxes, losses, credits, or demand ratchet. The main meter records 10,000 kWh. Production A uses 4,000 kWh, B uses 3,000 kWh, and a separately identified shared/idle pool uses 3,000 kWh. The invented rate is $0.10/kWh. Billing demand is 50 kW at an invented $12/kW, plus a $100 fixed service charge. The bill totals **$1,000 + $600 + $100 = $1,700**.

At the site peak interval, A contributes 30 kW, B 10 kW, and shared loads 10 kW. Demand allocations are therefore $360, $120, and $120. Management chooses to retain all shared/idle energy and the service charge in a facility pool:

| Cost pool | A | B | Facility | Total |
| --- | ---: | ---: | ---: | ---: |
| Consumption | $400 | $300 | $300 | $1,000 |
| Coincident demand | $360 | $120 | $120 | $600 |
| Fixed service | $0 | $0 | $100 | $100 |
| Allocated total | **$760** | **$420** | **$520** | **$1,700** |

If full absorption is required, a separately disclosed policy might distribute the $520 facility pool 60:40 by occupied operating hours. That adds $312 to A and $208 to B, producing **$1,072 + $628 = $1,700**. The second allocation changes cost responsibility, not measured consumption. Do not charge the $520 again while also retaining it in the facility total.

Dividing the entire bill by 10,000 kWh gives $0.17/kWh. That is a historical blended recovery rate under these assumptions, not the marginal price of another kWh. A job outside the peak interval might add consumption without changing demand; conversely, a short load can increase a demand charge while adding little energy.

## Idle loads, estimates, and reporting

Keep production, standby, and shared consumption visible before deciding whether to absorb them. Government metering guidance identifies idling equipment and out-of-hours consumption as diagnostic opportunities. Spreading these loads over current output can increase cost per good unit when utilization falls without explaining why. Retaining a visible pool helps distinguish operational changes from denominator changes. [Australian government metering guidance](https://www.energy.gov.au/business/equipment-guides/metering-and-monitoring)

Reconcile allocations to the bill. Report meter coverage, drivers, rate basis and unresolved differences. Reassess when tariffs, shifts, mix or meter boundaries change.

## Related reference

[Cost structure and cost bases](../cost-structure-and-cost-bases.md)