How to Reduce Energy Bills by Lowering Transmission and Capacity Costs

The energy price volatility that is taking place today has commercial and industrial business leaders exploring ways to lower energy costs. A commercial electricity price is influenced by several factors. There are conditions that cannot be controlled, such as weather and fundamental market conditions, and there are elements that can be controlled. In this blog, we discuss two costs on your energy bill, beyond commodity rate, that can help you lower commercial energy costs.

                           About Transmission Costs

There has been a lot of recent movement in transmission costs within regions of PJM. This year, the capacity auction that was originally slated for January 25, 2022 was moved to May 1, 2022. In addition, the Federal Energy Regulatory Commission (FERC) is reverting to the previous market design for the May 1, 2022 auction; a backward-looking Net Energy & Ancillary Services Revenue Offset rather than forward-looking. The result could lead to an increase in charges to end-users. The extent of these changes is currently unknown.

In PJM, the mechanism that transmission owners use to recover their annual transmission costs, and revenue requirements from PJM customers, is called Network Integration Transmission Service (NITS).  NITS charges can change as costs associated with operation and maintenance, tax, cost of capital or rate base, and transmission owner cost of services fluctuate.

                                   How Transmission Costs Are Caculated

 Each local distribution company within PJM has a network transmission service peak load contribution (PLC) requirement. Like capacity tag costs, NITS (and Transmission Enhancement Charges) are calculated based on a customer’s peak-load demand and are referred to as the Transmission Tag, or Transmission PLC. The transmission tag uses the following formula: