With this week’s hot weather across much of the PJM Interconnection, several electricity suppliers have been sending alerts to their customers suggesting that users reduce usage during projected peak hours of the afternoon. This is important because of the way the PJM Interconnection allocates their capacity costs across their customer base.
PJM is a regional transmission organization (RTO) that manages the wholesale flow of electricity in 13 states and the District of Columbia, stretching from New Jersey to Illinois (see PJM territory map shown left). The RTO is both the market operator as well as the body that ensures grid reliability, making sure that there is adequate capacity to meet customer demand each hour of every day.
PJM utilizes a system called Peak Load Contribution (PLC) in which their costs of capacity are allocated to customers based upon each customer’s load during the previous year’s system-wide load peaks. PJM determines the five highest system-wide peak load hours, having occurred on five separate days, from June 1st to September 30th. PJM then identifies each customer’s contribution to those peak load hours and assigns a PLC value based off of that percentage. Suppliers then use the PLC as part of their pricing model as they allocate PJM capacity prices during the following year. The PLC determined in 2015 will apply to the June 2016 – May 2017 PJM plan year. As peak usage in PJM generally occurs on the hottest summer days, a customer can reduce usage during the hottest period of those days and thus reduce their PLC costs next year.
Reducing peak load does not mean radically curtailing usage or shutting down altogether. Commercial facilities must still operate, whether hospitality, office or retail, but operators can still make adjustments that can reduce demand. Raising the thermostat by a degree or two and reducing lighting in non-critical areas such as lobbies and hallways is one easy way to decrease peak load. These reductions may not seem like much, but capacity costs can represent 10 percent to 30 percent of total supply cost in PJM, so significant savings can be realized by the alert customer.
The information in this page is offered only for general informational and educational purposes. It is not offered as and does not constitute legal advice.