Demystifying Capacity Charges

Understanding all the parts of an electricity price quote can confuse many. There is the rate per kWh as well as the specific charges for Generation, Transmission and Capacity. Clean Currents and other energy suppliers do not include distribution charges and taxes in the price quote. As part of helping you be an informed green energy shopper, we are going to focus on demystifying the Capacity charge.

You may have noticed that your electric bill contains several different charges: distribution, generation, transmission, among others. The distribution portion of your bill goes to the local utility, whether or not you choose an alternate supplier like Clean Currents. This portion finances the maintenance of local power lines. The Generation and Transmission (or “Energy Charge”) are controlled by the electric supplier you choose and account for the generation of energy and the transportation of it across long distance power lines – called transmission lines. Transmission lines are similar to the local distribution lines maintained by a local utility, but since they cross utility regions and state lines, they are maintained by a “market operator”. In our area, this operator is called PJM. This entity is in charge of our regional power grid, and in addition to maintaining these long distance transmission lines, also makes sure the regional grid is balanced and operates smoothly. This function is financed through capacity charges, which are included in the Energy Charge.

Capacity Charges and Your Energy Bill

Because capacity charges are set by PJM, they will be the same regardless of what energy supplier you choose. When comparing price quotes, it is important to ask if the rate includes the capacity charge so this is not a surprise when it appears on the bill. Your Clean Currents price quote will include the capacity charge in the energy cost. It can also be listed separately if requested.

How is my capacity charge determined?

Capacity is determined by your individual Peak Load Contribution (PLC). Each customer has their PLC set on June 1st of each year, and it remains at that level through the end of May of the following year. The PLC is essentially the “virtual pipe” that connects the user to the electricity grid. The size of the “pipe” is determined by the largest amount of kWh a customer uses on the five peak demand days of the year (as set by PJM). If a customer has a load profile such that their demand is disproportionately high (relative to the electricity consumption) during those peak periods of the year, they are likely to have a very poor PLC load factor, meaning a large “pipe”. This is important because the larger the pipe, the higher the PLC, and thus the higher the capacity payments on a per kWh level.

When are capacity charges set?

We currently know capacity charges through June 2017. According to the records, the upcoming June 1st – May 31st, 2014 period will have the highest capacity prices in PJM history. The following two periods will then see a consistent reduction.

Why will the capacity charges go up?

There are several reasons for PJM raising the capacity charge. (1) PJM has authorized $5 Billion in new transmission upgrades to the grid. As mentioned above, these types of upgrades are financed via the capacity charge. (2) The  EPA Mercury rule and the Particulate Matter rules (both designed to clean the air and water!) are causing some old coal plants to retire, plus they are necessitating deployment of monitoring stations, all of which causes capacity prices to increase.

How can I lower my capacity charge?

Unfortunately it is too late for the upcoming June 1st – May 31, 2014 period. It is impossible to forecast which five days will be determine to be the  five peak demand days of the year (as set by PJM). With that said, there are ways you can lower your overall usage. We are always willing to help our customers connect with resources and tools. Call your Customer Engagement Manager if you would like assistance!

In summary, the key items to remember about capacity:

1) Ask if capacity charges are included when comparing rate quotes.

2) PJM sets capacity charges.

3) Capacity charges over the next year will be higher than they have been in the past.

4) Your Peak Load Contribution (PLC) will determine your individual capacity charge.

5) Planning ahead and managing your energy usage can help reduce your capacity charge in the future.