For electricity customers in the PJM/Comed utility region, statements reflecting the coming June billing cycle will show capacity payment increases of approximately 351% for the next year, June 1, 2014 – May 31, 2015. This fact raises many questions from our customers and we will attempt to answer some of those here. First, it is important to note that there are 23 Electric Distribution Companies (EDCs) in the PJM territory and they all can have different capacity prices (determined by an auction process) that are unique to their service territory. In fact, many utility customers in other territories will see a drop in their capacity rates for the 2014-15 period. A good definition of capacity charges is that the “The Capacity Charge covers a Load Serving Entities (LSEs) costs to reserve enough electricity to meet demand at all times, including peak hours”.
Capacity Charges essentially allows the LSE to reserve generating capacity in advance, ensuring that enough electricity will be available when it is needed. All electricity suppliers are required to reserve capacity to cover their customer’s Capacity Obligation which the customer does pay for. This capacity obligation is determined each year by measuring a customer’s peak demand during the system’s (ComEd Zone) 5 highest peak demand hours (adjusted for Transmission and Distribution losses) coincident with the five hours of the summer when the overall PJM System demand was highest (PJM Coincident Demand). These two sets of five coincident demands are averaged and adjusted to determine your contribution to the system load, creating your Capacity Obligation for the next period (your capacity obligation was determined in 2013 for the 2014-15 timeframe). A Capacity Obligation is then used to calculate your individual Capacity Charge (capacity obligation times the auctioned capacity price). So the higher or lower a customer’s demand was during those ten peak hours (coincident with the five PJM System peak hours and the five ComEd System peak hours) of last summer, the higher or lower the customer’s Capacity Charge will be the following year. This summer alfaenergy will notify its current clients of these potential high demand days with the goal of helping them reduce demand on those calculation days thereby lowering capacity payments for the following year.