The difference between demand and consumption is vital to your choices in reducing your energy costs. A simple way to see the difference between demand and consumption is by considering two examples.
One 100-watt light bulb burning for 10 hours consumes 1,000 watt-hours or 1 kWh. The entire time it is on, it requires or "demands" 100 watts or 0.1 kW from the utility. That means the utility must have that 0.1 kW ready whenever the customer turns the lamp on.
Similarly, ten 100-watt light bulbs burning for 1 hour consume 1,000 watt-hours or 1 kWh. Note that in both examples, the consumption is 1 kWh, however, look how differently the second situation impacts the utility from a demand perspective. The serving utility must now be prepared to provide ten times as much capacity in response to the "demand" of the 10 light bulbs operating all at once.
If both of these customers are billed for their consumption only, both will get the same bill for 1 kWh of energy. And that is the way most residential customers are billed. But the requirement for the utility to meet this energy requirement is very different. In the second case, the utility has to have 10 times more generating capacity to provide the second customer's brief high demand for power compared to the first case.
Commercial and industrial customers are often billed for their hourly consumption patterns and their peak demand for energy. These customers often have special meters that measure both, unlike residential meters that just record total consumption in a time period, usually one month.
So, you might ask, "why doesn't the utility bill all customers for demand and consumption?" Seems like that is only fair. And it would be, but the fact is that most homes have a pretty similar demand profile and the meters capable of measuring both demand and consumption are much more expensive. Far too expensive to justify having one on every home. So all most residential customers need to be concerned with now is consumption billing. As the cost of metering drops, and as automatic metering advances, we may see increased use of demand billing for homes.