Did you know that your electricity supply price is the sum of multiple components?
These components differ depending on your usage, service zone, and a variety of other factors. Furthermore, each component has potential for its own cost avoidance. To achieve the maximum cost avoidance of each, however, you must implement an intelligent strategy to lock each in at the precise time.
The body that is in charge of the coordination and operation of the entire electrical system in a given area is called the Independent System Operator (ISO). 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. While commonalities do exist between the different price components, the percentage they occupy of your electricity supply price vary greatly.
This post will be diving into the electricity price components for PJM Interconnection. If you’d like to learn about the price components for the NYISO or ISO-NE, be sure to check out the linked posts at the bottom of this page.
For information on the pricing of natural gas, be sure to check out our post, The Components of Your Natural Gas Supply Price.
Energy is the actual electricity commodity that powers your facility. It is generated from a variety of producers like power plants, generators, and renewable sources. This price component makes up the largest piece of your electricity supply price and the cost of it is determined by your facility’s kWh usage.
Capacity refers to the amount of electricity that needs to be produced/available for your facility’s demand requirements. As every building on an electrical grid requires a certain amount of demand or capacity to run at all times, the electricity grid also has its own capacity demand requirements. Capacity is extremely important because if there is not enough capacity generation on deck at all times to tackle the peak load of the grid, disastrous brown outs, blackouts, and other unexpected outages may ensue.
In PJM, your capacity rate, also referred to as a capacity tag, for the following year is set by a snapshot of your demand requirements during five peak hours, which are totaled and averaged by the ISO. Peak hours occur when usage is highest throughout the entire PJM area, usually during sustained heatwaves on weekdays in the summer. Fortunately, there are a variety of peak load management methods you can use to curtail your usage at the right times during these days to lower your demand requirements.
With our Peak Notification Service, which is complimentary for being a Best Practice Energy client, we assist you with designing and implementing a peak load management curtailment plan as well as inform you by text, phone, or email when we anticipate incoming peak usage times. To discover more about saving on capacity costs with our Peak Notification Service, click here.
Renewable Portfolio Standards (RPS)
Renewable Portfolio Standards (RPS) refer to a percentage of your electricity supply price that is mandated by law to come from renewable resources like solar panels and wind power. With the fundamental energy shift moving the United States towards more renewable energy usage, the cost and percentage of RPS in the electricity supply 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 must be increased to 35% by 2025 and 50% by 2030!
Best Practice Energy is committed to keeping a very close eye on regulatory and legislative changes in all state zones we work in in order to provide our clients with visibility and protection against these types of price climbs. Massachusetts faced one of these RPS price surges in 2018 and we were able to help our customers in the area avoid these new costs by locking in their contracts before the legislation went into effect. Check out this blog post for the full story.
Transmission costs are a piece of the electricity supply price pie in the PJM area that is not present in ISO-NE or NYISO. This price component is made up of two main aspects: Network Integration Transmission Service (NITS) and Transmission Enhancement Charges (TEWAC/TEC).
Network Integration Transmission Service (NITS) Costs: The transmission & transportation of capacity and energy from generating resources to the customer’s facility. This cost is determined annually and is different for each of the 22 zones throughout PJM. These costs update at either the beginning of the calendar year or the start of the new capacity year depending on the zone you’re in (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 to provide for the operation, economic, and reliability requirements of all PJM customers.
A minimal part of your electricity price, Line Losses represent the cost of the amount of electricity that is lost in the transportation and transmission of electricity from the grid to your facility. Because electricity passes through various transformers and high-voltage lines on its journey from the point of generation to your facility, portions of it are lost due to heat dissipation. Due to the fact that there must always be enough energy purchased by the utility to cover the estimated consumption of the grid area, customers are faced with covering the price of the lost commodity.
Another small piece of your electricity price, Ancillary Services exist to help balance transmission systems as they move electricity from the point of generation to your facility. There are 2 main Ancillary Services in the PJM Interconnection market: regulation and reserves. To learn more about Ancillary Services in PJM, be sure to check out the PJM Learning Center page.
One factor that sets Best Practice Energy apart from the rest of the pack is that we provide you with education on each electricity supply price component in order to help you understand what costs you can control and reduce as well as what costs are unavoidable. Instead of simply telling you what to do, we want to empower you so you feel confident in making sophisticated decisions about your own electricity contracts. Our experts monitor each component closely to help you design a strategy tailored to your business that locks components in at precise times to ensure you achieve the cost avoidance you need to meet your budget goals.
Be sure to check out our other blog posts on the electricity supply price components of New York (NYISO) and New England (ISO-NE).
Contact us today to discover how we can help you achieve maximum cost avoidance on your electricity bills through sophisticated strategies for managing each price component.