Commercial Electricity Tariff and Time-of-Use — A Practical Guide to Reducing Costs in an Office Building

The electricity bill is usually the second- or third-largest operating expense in an office building — and at the same time one of the least understood. Over years of work managing buildings, I have seen the same phenomenon again and again: property owners approve an electricity bill of tens of thousands of shekels a month without anyone looking at the consumption breakdown. They pay, move on, and wonder why the expenses are growing. But the electricity bill is not a number dictated from above — it is a direct result of when you consume, how much simultaneously, and how well the electrical system is maintained. Whoever understands the structure of the tariff can reduce the expense significantly — without turning off a single light and without harming any tenant.

Who sets the tariff — and why it matters to you

Electricity tariffs in Israel are regulated by the Electricity Authority — the government regulator of the electricity sector — which publishes a detailed tariff schedule each year. The schedule distinguishes between types of consumers (residential, commercial, industrial) and between voltage levels (low, medium, high). A commercial office building is almost always classified under a completely different tariff from the residential one and is included in a mechanism called the time-of-use tariff.

This distinction is critical because market reforms in recent years have opened the possibility for commercial buildings to choose a private electricity supplier and negotiate the energy component. But before comparing offers, you need to understand what makes up the bill — otherwise you compare apples to oranges and miss what matters.

In practice, buildings that look only at the "total due" line often lose considerable money on components they could control — and especially on peak demand and the power factor penalty, on which we will expand.

Time-of-use tariff (TOU) — the same electricity, a different price

The idea behind TOU is simple: the electricity grid has peak hours and off-peak hours. When everyone consumes simultaneously, the system runs expensive and less efficient power plants. To incentivise spreading out consumption, the Electricity Authority prices the same kWh (kilowatt-hour) at different prices across three periods:

• Peak: the highest-demand hours — the most expensive price. In an office building these are usually the midday hours in summer, exactly when the HVAC is working hardest.
• Shoulder: intermediate hours — a medium price, most of the regular working hours.
• Off-peak: the night and weekend hours — the cheapest price.

The gap between a peak hour and an off-peak hour is significant — not a matter of a few percent but a real difference that adds up to thousands of shekels a month in a medium-sized building. The division into periods also varies between seasons (summer, winter, transitional), so the same hour may be "peak" in July and "shoulder" in November. The updated period schedule is published on the Electricity Authority's website, and a building manager who is unfamiliar with it pays an unnecessary premium on consumption that could have been shifted.

The common mistake: focusing on consumption and ignoring the hours

I saw a building that ran an industrial washing machine to handle the floor tea-kitchen supplies every day at 1:00 p.m. — exactly at peak. Shifting the machine's operation to 9:00 p.m. reduced that consumption cost by more than half, with no change in tenant habits and no investment whatsoever. This is the logic of TOU in action.

A critical difference: consumption versus demand (kWh versus kW)

This is the point where most building managers get confused, and it is worth real money. On a large commercial consumer's bill, two entirely separate components appear:

• Energy consumption (kWh): how much electricity was consumed in total over the month — the more you consume, the more you pay. The intuitive part.
• Peak demand / power (kW): what the maximum instantaneous power consumed simultaneously was at some point in the month. Here it does not matter for how long — what matters is the highest spike measured, usually over a window of 15 or 30 minutes.

The practical meaning: a summer morning in which all the building's HVAC units start together at seven, along with the elevators returning to operation and the floor lighting turning on all at once — that instantaneous spike sets the demand charge for the entire month, even if it lasted ten minutes. In a medium-sized building's bill, the demand component can amount to tens of percent of the total bill.

A building I handled paid a high demand charge every month that stemmed entirely from the simultaneous start-up of the rooftop compressors at the start of every working day. After reprogramming the VRF controller to stagger the start-ups over twenty minutes, the demand component dropped considerably — without any tenant noticing the change.

The power factor penalty — the silent penalty charged month after month

This is perhaps the least understood component of the commercial electricity bill. Large electric motors — HVAC compressors, pumps, elevator motors — consume two types of power: active power (the one that does real work) and reactive power (the one that "circulates" in the system without doing useful work, yet still loads the grid). The ratio between them is called the power factor (cos φ).

When the building's power factor drops below the threshold set by the Electricity Authority, the Israel Electric Corporation charges an additional fee — what is known as a "power factor penalty" or a penalty for reactive power. The penalty appears on the bill but is usually not examined, and managers pay it month after month without knowing it is even correctable.

The solution: a capacitor bank — and the failure of the one-time treatment

The engineering solution is the installation of a capacitor bank for power-factor correction. But — and this is the critical maintenance point — a capacitor bank is not an "install and forget" device. Capacitors age, burn out and quietly stop functioning. The building keeps paying the power-factor penalty month after month, simply because the bank installed six years ago no longer works and no one checked.

I came across a building whose bank had failed three years before we identified the problem. A review of the old bills revealed a fixed monthly penalty that accumulated to a considerable sum. Checking the power factor is a simple and inexpensive action, and it pays for itself almost immediately. We expanded on this in electrical systems maintenance in an office building.

Where electrical maintenance meets the electricity bill

It is easy to think of electrical maintenance as a matter of safety only. That is true, but not complete. A neglected electrical system is also a wasteful system. A few examples from the field:

• Loose connections in the panels: a poor contact point creates resistance and heats up — and wastes energy as heat. Periodic thermal imaging locates the hot spots before they turn into a failure, and also saves wasted energy.
• A failed capacitor bank: as described — a silent failure that costs money every month without warning.
• Motors and compressors that are not maintained: a compressor with clogged filters or worn bearings draws a higher current for the same work — raising both consumption and peak demand.
• Old lighting with no control: lighting systems with no occupancy sensors or timers illuminate empty spaces — especially bad during expensive peak hours.
• Unbalanced loads between phases: phase imbalance increases energy waste and accelerates equipment wear. An annual check is easy to perform and rewarding.

Good electrical maintenance is not just protection against disaster — it is a savings mechanism that pays for itself. This is exactly why the electrical system is a clear candidate for planned preventive maintenance, as described in the annual preventive-maintenance checklist.

Five practical actions to reduce the electricity bill

Theoretical understanding is worth something only when it turns into action. These are five actions every office-building manager can implement, from the simplest to the most complex:

1. Shifting consumption away from peak hours: identifying what can be shifted — charging backups, running boilers, industrial laundry, filling water tanks — to shoulder or off-peak hours. Not every load can be shifted, but a real portion usually can.
2. Coordinating start-ups to prevent a demand peak: programming the HVAC controller to stagger the start-up of the HVAC units over several minutes in the morning. An action that requires an electrician and/or an HVAC technician for a few hours — and carries with it a consistent monthly saving.
3. Checking the power factor and the capacitor bank: an annual check of cos φ and of the bank's condition. Usually the corrective action with the fastest return — certainly in buildings with large motors.
4. Annual thermal imaging of the panels: locating loose connections, hot spots and unbalanced loads — improving safety and saving energy at the same time.
5. Smart lighting and HVAC control: occupancy sensors, scheduling, and in large buildings — a building management system (BMS) that turns off services in empty areas. We expanded on this in the building management systems guide.

The regulatory side — what is mandatory and what is worthwhile

It is important to separate what the law requires from what is worthwhile.

System safety is a clear legal obligation: the Electricity Law and its regulations require the electrical system to be sound and safe, to be inspected by an electrician holding the appropriate certification, and for the earthing system to be tested at the cycle set in the regulations. Neglect here is not just waste — it is exposure to liability and to voiding insurance coverage in the event of an incident, a subject we touched on in office building insurance.

By contrast, tariff optimisation — choosing a supplier, managing TOU, reducing demand — is not a legal obligation but a managerial-economic decision. The regulation permits it but does not compel it, which is why most buildings simply do not do it.

It is also worth noting the connection to sustainable construction: Israeli Standard 5281 for green building includes aspects of energy efficiency, and buildings seeking a green label are required to demonstrate orderly energy management. Even without aiming for the label, the principles of the standard are a good roadmap for any building that wants to systematically reduce consumption.

Why this almost never happens on its own

If it is all so worthwhile, why do most office buildings in Israel not manage their electricity consumption? The answer is operational-cultural. The bill arrives, someone approves it, and it is perceived as "a decree of fate." There is no one who sits with the hourly consumption data, analyses when the demand peak is created, checks the power factor or examines offers from competing suppliers.

The knowledge is scattered: the HVAC company handles the compressors, an electrician comes for faults, and no one holds the overall energy picture. A single party that holds the consumption data, understands the tariff structure, schedules the maintenance and examines the bill in depth turns electricity from a blind expense into a variable that can be controlled.

This is not magic; it is method. In comprehensive property management we connect the electrical maintenance, the consumption analysis and the tariff control into a single picture.

Bottom line for the building owner

An office building's electricity bill is not a fixed given but the result of decisions: when you consume, how much simultaneously, and how well the system is maintained. The three keys are: to understand TOU and shift consumption away from peak hours; to take control of the peak demand through start-up coordination; and to maintain the electrical system — and especially the power factor and the capacitor bank — so that you do not pay hidden penalties. Each of these is implementable, and all of them together turn a large expense into a managed one.

At Domera we analyse the electricity consumption, maintain panels and capacitor banks, and build a plan to reduce demand during peak hours. Get a quote for a review of the bill and the electrical system in your property.