Maximum demand indicator(MDI) is used, in two part tariff, to charge consumers. It comes inbuilt in special KWH meter used for charging large demand, industrial consumers. Consumer charged, on basis of his KWH demand(fixed charge) plus the charge based on his maximum demand(variable charge).Charge depends on the policy of the supply companies, it varies with company to company.

Agreed, the MD charges vary with the tariff policy. Normally MD charges are to try and encourage users to better utilise the utilities supply transformer and maintain overall usage within the defined MD rating of the supply transformer. The more users or the larger the diversity factor the better utilisation the utility gets from the supply transformer as an asset.

Thus by keeping all users within their notified MD (normally any user must define what their expected MD is going to be (normally called notified maximum demand)) and the supply utility may then manage usage within the known MD of all customers connected to the supply transformer.

The MD calculation itself is standard and is defined as the average power used over the defined billing interval. This may be 10, 15 or 30 min. The MD calculation may differ in that it may be either a sliding window or fixed demand calculation depending on customer usage.

Also in some cases if a customer provides a notified demand the utility demand rules normally impose a penalty if it is exceeded and may define a minimum MD (ie 70%) below which users is penalised. For example let us say I set a notified MD of 100MVA. Then I am expected to maintain the MD, within the each billing period (15/30 min) between 70-100MVA throughout the entire month.

If I exceed 100MVA for any single billing period during the month I pay a penalty and the utility normally increases the notified MD to this new value. If on the other hand I drop below 70MVA then I am still charged at 70MVA even if I use 0MVA. Thus the rules are normally set to encourage users to maintain their usage with a defined band as this will allow the supply utility to better utilise and manage it assets and is quite important for energy trading. For example of I have 100 customers with an MD of 40MVA each all using a single100MVA transformers I am managing my asset well opposed to the same transformer with say three users at 50MVA each.

As mentioned above the rules will differ depending on the supply capacity constraints and usage levels.

Thanks to Mr. Gregory Diana for detailed answer