This may come as a surprise, but the price you pay your supplier for electricity is made up of multiple components.
Each component has its own nuances and requires a strategy to ensure you are maximizing its cost avoidance potential. Furthermore, these price components vary widely depending on your service zone, usage, and a multitude of other factors.
The body that oversees the coordination and operation of the electrical system in a particular territory is called the Independent System Operator (ISO). There are 5 ISO regions throughout the US. Best Practice Energy typically services clients in 3 of these regions:
- NYISO (New York)
- ISO-NE (New England: Massachusetts, Rhode Island, Connecticut, Maine, and New Hampshire)
- PJM Interconnection (serves parts of Delaware, Illinois, Indiana, Kentucky, Maryland, Michigan, New Jersey, North Carolina, Ohio, Pennsylvania, Tennessee, Virginia, West Virginia, and the District of Columbia)
The components that make up the electricity supply price come from each ISO and, while some are consistent, their proportions in the entirety of your electricity price vary significantly.
This post will be focusing on just the components of electricity pricing for ISO-NE. If you’re interested in learning about the price components for New York or PJM, please see the links at the end of this post.
For information on the pricing of natural gas, be sure to check out our post, The Components of Your Natural Gas Supply Price.
ISO-NE: Massachusetts, Rhode Island, Connecticut, New Hampshire, and Maine
As seen above, while the price components that make up the electricity price are the same for ISO-NE serviced states, the proportions of each are very different.
Energy represents the actual generated commodity from power plants and the like that powers your business’s facility. No matter the state zone, this price component takes up the largest portion of the supply price and the cost of which is reflective of your facility’s usage per kWh.
Your monthly capacity costs, also referred to as a ‘capacity tag’, is the rate you pay for the demand or the maximum amount of power your facility requires to fully operate. More succinctly, capacity is how much electricity needs to be produced and available for use, but not the electricity itself. Because each building on a grid requires a certain amount of capacity to be available to power the facility, the grid also has its own demand or capacity need. Capacity is vital because if there is not enough generation available to handle the peak load of the grid, brown and black outs can occur.
In New England, your capacity rate for the following year is determined by the highest peak of your electricity usage and demand on peak day, which is the day of the year that the most power is being drawn from the grid. Fortunately, there are steps you can take to reduce your capacity tag by curtailing your usage at precise times on these days so your electrical meter reads a lower demand. This process is called peak load management.
We offer a service, free of charge, that helps you design and implement a peak load management curtailment plan and informs you by text, phone, or email when we predict a peak day or peak event is coming so you can curtail at the right times. Click here to learn more about saving on capacity costs with our Peak Notification Service.
Renewable Portfolio Standards (RPS)
Renewable Portfolio Standards (RPS) are a percentage of your electricity supply price that is required to come from renewable resources such as solar panels and wind power. As energy generated from green and renewable resources becomes more prevalent, the cost and amount of RPS required for an electricity supply will increase. The cost of RPS is very dependent on state-specific legislative and regulatory outlooks and can drastically change within each state’s zone.
We monitor regulatory and legislative changes very closely to provide our clients with visibility and protection against these types of price surges. When RPS prices skyrocketed in 2018 in Massachusetts, we helped protect our clients’ contracts by locking their costs in before they came into effect.
Line Losses, a very minimal piece of your power price, represent the quantity of the electricity that is lost in the transportation and transmission of it from the grid to your facility. This is because electricity must travel extremely far through various transformers and high-voltage transmission lines from its initial generation point to its usage site. Due to heat dissipation, small amounts are lost throughout its journey. These costs are passed on to customers because enough energy must be purchased by the utility to cover the estimated consumption of the grid area.
Another minimal yet important piece of your electricity price, Ancillary Services represent the cost of services that support and power the entire system to ensure its reliable operation at all times, especially during stretches of heavy demand or amid emergencies. These services perform a similar purpose in all ISO regions, however, the specific services vary from ISO to ISO.
We educate our clients on the nuances of each component of their electricity supply price so they better understand what costs can be controlled and evaded as well as what costs are unavoidable. The goal here is to empower them to make sophisticated and intelligent decisions about their electricity contracts. Because these prices are constantly changing, our experts keep a watchful eye on each component to help clients develop a strategy to lock each in at the right time to ensure they achieve their cost avoidance and budget goals.
As electricity price components are dependent on what ISO region your business is in, check out our other blog posts below for more information on the price components for New York (NYISO) and PJM (PJM Interconnection):
Contact us today to discover how we can help you achieve maximum cost avoidance on your electricity bills through sophisticated, proactive strategies for each price component.