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Did you know that your electricity price in the PJM Interconnection region is the sum of multiple components?

These components differ depending on your usage, service zone, and a variety of other factors. Furthermore, each component in a PJM Interconnection electricity price has potential for its own cost avoidance.  An intelligent strategy for each is the key to reducing costs on your electricity bills.

The Independent System Operator (ISO) is the organization in charge of the operation of an electrical system in a region.  The United States deregulated energy service areas consist of 5 of these ISOs. Best Practice Energy works in the following ISO-controlled regions in the US: 

  • PJM Interconnection: Services parts of Delaware, Illinois, Indiana, Kentucky, Maryland, Michigan, New Jersey, North Carolina, Ohio, Pennsylvania, Tennessee, Virginia, West Virginia, and the District of Columbia
  • NYISO: Services New York
  • ISO-NE: Services all deregulated states in New England (Massachusetts, Rhode Island, Connecticut, Maine, and New Hampshire)

What’s interesting is that each of these ISO regions have their own electricity supply price components that are specific to the area.  Commonalities do exist between the price components, however, the percentage they occupy of an electricity price vary.

A piechart breaking down the components of electricity supply price in the PJM Interconnection region

This post will be diving into the electricity price components for PJM Interconnection.  PJM Interconnection is actually a Regional Transmission Organization (RTO), which serves the same functions as an ISO.  Check out these posts for information on NYISO price components as well as for ISO New England.

For information on the pricing of natural gas, be sure to check out our post, The Components of Your Natural Gas Supply Price.  


Pie chart showing the portion the energy supply price component occupies of the PJM electricity supply price

Energy is the actual electricity commodity that powers a building.  It is generated from a variety of producers like power plants, generators, and renewable sources.  This price component takes up the largest piece of your electricity supply price.  The cost of it is determined by your facility’s kWh usage.


Pie chart showing the portion that the capacity component occupies of the PJM electricity supply price

Capacity refers to the amount of electricity that needs to be produced/available for your facility’s demand requirements.  Every building on an electrical grid requires a certain amount of demand or capacity to operate.  The electricity grid also has its own capacity demand requirements. Too little capacity generation available for the grid’s peak load can lead to brownouts, blackouts, and other unexpected outages.

In the PJM Interconnection area, your capacity rate (capacity tag) is set by a five snapshots of your demand. The RTO takes these snapshots during five peak hours, totaling and averaging them. Peak hours occur when usage is highest throughout the entire PJM area. These occur during sustained heatwaves on summer weekdays. 

Fortunately, you can reduce capacity costs through peak load management.  With this method, you curtail your usage during these peak hours to lower your demand requirements.

With our complimentary Peak Notification Service, we assist you with designing and implementing a peak load management curtailment plan. We contact you when we anticipate peak events so you can enact your curtailment plan.  In 2020, we had one client reduce their capacity tag by $90k by doing this!

PJM Interconnection Renewable Portfolio Standards (RPS)

Pie chart showing the portion of the PJM electricity supply price that RPS occupies

Renewable Portfolio Standards (RPS) refer to a percentage of your electricity supply that must come from renewable resources. As the United States increases its renewable energy use, the cost and percentage of RPS will increase.  

The cost of RPS is contingent on each state’s regulatory and legislative outlooks.  For example, recent New Jersey legislation specifies that RPS requirements will increase to 35% by 2025 and 50% by 2030!

Massachusetts faced one of these RPS price surges in 2018.  We helped our clients there lock their RPS costs on their contracts before the law went into effect.

PJM Interconnection Transmission

Pie chart showing the portion of the PJM electricity supply price that the Transmission component occupies

This PJM Interconnection-specific component consists of two main aspects: Network Integration Transmission Service (NITS) and Transmission Enhancement Charges (TEWAC/TEC).

Chart showing the PJM Annual Transmission Revenue Requirements and Rates for the NITS piece of the Transmission price component

Network Integration Transmission Service (NITS) Costs: The transmission & transportation of electricity from generating resources to the customer’s facility. This cost is determined annually and is different for each of the 22 zones throughout PJM Interconnection.  These costs update at either the beginning of the calendar year or the start of the new capacity year. This is dependent on each specific zone (figure 1).

Network Integration Transmission Service (NITS) Tags: A user’s NITS tag is determined by their usage during the SINGLE highest peak hour, unlike capacity which is an average of the 5 highest peak hours.

Transmission Enhancement Charges (TEAC/TEC): Transmission system upgrades and enhancements for the operation, economic, and reliability requirements of all PJM customers.


Line Losses

Pie chart showing the portion of the PJM electricity supply price that the Line Losses component occupies

Line losses represent the cost of the amount of electricity lost in the transportation and transmission of it.  As electricity passes through transformers and high-voltage lines throughout the grid, heat dissipation causes portions of it to be lost.

Ancillary Services

Pie chart showing the amount of space the Ancillaries component occupies of the PJM electricity supply price

Ancillary services exist to help balance transmission systems as they move electricity from the point of generation to a building.  There are 2 main Ancillary Services in the PJM Interconnection market: regulation and reserves. 

By understanding what goes into your electricity price, you know what costs you can control and reduce. This knowledge is a key piece of reducing your electricity bills. 

As energy brokers and consultants, we monitor each component very closely. With this insight, we then design a purchasing strategy tailored to your business. By locking in components at the right times and managing your energy, we can help you meet your budget goals.

Contact us today to discover how we can help you optimize your energy contracts with strategies for each price component. 

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