The price paid for your electricity supply is made up of a variety of components.
In order to maximize your cost avoidance potential, each of these components requires its own intelligent strategy to lock it in at the right time. These price components differ depending on your usage, service zone, and a variety of other influences.
The Independent System Operator (ISO) is the body that is in charge of the coordination and operation of the entire electrical system in a particular area. There are 5 of these ISOs throughout the United States. Best Practice Energy mainly services clients in the 3 of these regions:
- NYISO: Serves New York
- ISO-NE: Serves all deregulated states in 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
Each ISO region has its own electricity supply price components specific to the area it is responsible for. There is some overlap of these from ISO to ISO, but the proportion they occupy in your electricity supply price are not consistent.
The aim of this post is to discuss the electricity price components for the NYISO. If you’re interested in learning about the price components for PJM or ISO-NE, please check out the linked posts at the bottom of this page.
If you’re looking for information on natural gas pricing, please check out our post, The Components of Your Natural Gas Supply Price.
The actual commodity generated from power plants and other producers, energy is the electricity that powers your facility. This price component occupies the largest segment of your electricity supply price and its cost is dependent on your facility’s kWh usage.
The capacity price component represents the demand or maximum amount of electricity that needs to be produced and allocated for a facility to operate at its fullest at any given time. Every building on an electrical grid requires a certain amount of demand or capacity to be available to power it and so does the grid itself. Without enough available electricity to tackle the peak load of the grid, brown outs, black outs, and other unexpected outages can occur.
In New York, the price of your capacity rate (capacity tag) for the following year is determined by your demand for electricity during peak day or peak events, which are times during the year that the most electricity is being drawn from the grid to power buildings. There are a variety of simple methods you can employ to curtail your power demand at precise times during these days to reduce your capacity tag, a process referred to as peak load management.
Our Peak Notification Service, offered free of charge, helps you design and implement a peak load management curtailment plan as well as informs you by text, phone, or email when we forecast an incoming peak day or peak event so you can implement a peak load management strategy at the right times. To read more about saving on capacity costs with our Peak Notification Service, click here.
The New York capacity market consists of 4 zones and the costs differ drastically in each (Figure 1).
To determine the price, there are 3 types of auctions that the ISO holds: Strip, Monthly, and Spot:
Strip Auction: This type of auction takes place twice per year and occurs ~1 month before the summer and winter capability periods (summer capability period: May – Oct, winter capability period: Nov – April). E.G. Auction for Summer capability period occurs ~ March 30th. Generators will commit to providing a given MW of capacity for the upcoming summer or winter capability period.
Monthly Auction: This auction occurs in the middle of the month for the upcoming month and the remainder of the capability period (e.g. Auction for May – Oct occurs ~ April 15th; The next month the auction would be for June – Oct and would take place ~May 15th). Generators will commit to providing a given MW of capacity for the remainder of the summer or winter capability period.
Spot Auction: The auction that a majority of the capacity in NY is purchased in, it occurs towards the end of the month for the upcoming month (e.g. Auction for May takes place ~April 25th). Generators will commit to providing a given MW of capacity for the upcoming month. A certain percentage of excess capacity clears in this auction, which all LSEs are required to purchase.
Regulatory Charges are part of New York’s Clean Energy Standard (CES), which requires a certain percentage of electricity from the NYISO to come from renewable resources like solar and wind power. Because the CES has extremely ambitious goals (70% of electricity in New York coming from renewables by 2030), it is made up of 2 aspects: Renewable Energy Standard and Zero Emission Credits.
Renewable Energy Standard (RES): All energy load-serving entities (LSE) in the NYISO area are required to obtain renewable energy credits (RECs) that are associated with new renewable energy resources for their retail customers. If LSEs are not meeting this REC commitment, they must make alternative compliance payments (ACPs).
Zero Emission Credits (ZECs): All energy load-serving entities (LSE) are required to procure ZECs from the New York State Energy Research and Development Authority (NYSERDA). The amount of these ZECs is determined by the amount of load the LSE’s handle in the state within a year.
A minuscule piece of your electricity price, Line Losses serve to cover the cost of the quantity of the electricity that is lost in the transportation and transmission process of moving electricity from the grid to your facility. This loss is typically due to heat dissipation as the journey electricity takes from its generation point to the facility where it is used passes through various transformers and high-voltage lines. The costs to cover this lost commodity is placed on customers because there must always be enough energy purchased by the utility to cover the estimated consumption of the grid area.
Transmission Owner Transmission Solutions (TOTS)
These costs are associated with the Transmission Owner Transmission Solution projects. These projects were built on New York’s transmission system in order to increase the transfer capabilities and efficiency between Upstate New York and Downstate New York.
In the NYISO area, the purpose of Ancillary Services is to maintain reliable operation of New York’s grid system as well as support capacity and energy transmission from the point of generation to a business’s facility. These services include Regulation Service, Voltage Support, and Black Start Capability. For more detail on New York’s Ancillary Services, check out the NYISO Ancillary Services page.
Our goal is to empower our clients to make confident and intelligent decisions about their energy contracts. This is accomplished by educating them on the nuances and intricacies of each electricity price component so they gain a greater understanding of what costs can be controlled and evaded and what costs are unavoidable. We monitor each of these price components very closely so we can help clients react quickly to constant changes as well as help them develop a cost avoidance strategy for each.
These price components are contingent on the specific ISO region your business is in. Check out some of our other blog posts below on the subject to learn more about the price components for the New England (ISO-NE) and PJM (PJM Interconnection) areas:
Contact us today to find out how we can help you achieve maximum cost avoidance on your electricity bills by using sophisticated, proactive strategies for each price component.