Previously, we have discussed capacity costs and the Base Residual Auction (BRA) that decides the clearing prices. Now we are going to delve into how these prices are converted into the $/kWh charges that are included in your supply rate.
A customer’s specific capacity costs are dictated by their peak load contribution (PLC) in kW. PLC is the average of your electricity demand in kW during the five coincidental summer peak hours (June, July, August, September). The peak hours are set by PJM based on real-time demand for electricity on the grid. For example, days warmer than 90 degrees tend to have elevated demand and potentially one of the peak hours. At the end of the summer, PJM releases what the five peak hours were, and your PLC is set accordingly for the following June. (Click here to view Summer 2016’s peak hours.)
For example, if you had a PLC of 200 kW for the summer of 2016, that number would be used for your capacity costs starting June 1st 2017. This PLC will be adjusted by The Forecast Pool Requirement and Zonal Scaling Factors, which account for reserve margin and forecasted electric demand growth. This will result in an adjusted PLC of 222.17, which is then multiplied by the BRA clearing price in $/kW – year, resulting in an estimated annual capacity cost of $12,457. Dividing this number by estimated annual usage in kWh will give you the estimated capacity costs in $/kWh for the year. If your PLC decreases, the capacity costs per kWh will go down; however, this change will not be reflected in your rate until the following June.
If you are in a fixed price product, your supplier used the PLC available at the time the contract was signed to estimate capacity costs. Therefore, lowering your PLC will not result in savings. Some electricity products allow you to pay your own capacity costs, so that you can take advantage of savings by lowering your PLC. In our next blog, we will dive into options available to customers that are looking to lower their PLC.
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