Understanding Your Electric Bill: Energy Transmission Costs Explained
The energy landscape is constantly evolving. Key drivers such as changes to the generation stack, or weather-driven events like the Polar Vortex, can pose a challenge to suppliers dedicated to providing reliable energy and buyers who are trying to avoid cost buildup within their energy bill(s).
When buying energy, it is important to understand the various components that make up your bill.
You may already know about the primary cost component (the physical delivery of the energy itself), along with the secondary cost component (capacity costs). You’re probably less familiar with the third factor, however. You guessed it: Today we are talking about energy transmission costs.
How Energy Transmission Costs Are Determined
Transmission components are used by transmission owners to recover the total annual cost of the transmission system for purposes of providing Network Integration Transmission Service (NITS). According to the PJM website, Network Integration Service allows Network Customers to integrate, economically dispatch, and regulate their current and planned Network Resources to serve their Network Load.
Apart from the NITS, another transmission-related component is Transmission Enhancements (TEC), defined as the cost to recover the revenue requirement associated with required transmission enhancements. Upgrades to the transmission system are necessary for several reasons including grid reliability, replacing aging equipment, relieving transmission congestion and even delivering electricity form new renewables generators.
Transmission rates, both NITS and TEC, are published once or twice a year and are public information. *This chart is based on a commercial customer with an annual usage of 20,000 MWhs and 50 percent load factor in the Atlantic City Electric Company (AECO) zone.
How Transmission is affecting the Mid-Atlantic Region
Over the past couple of years, some utilities in the PJM East footprint had large rate increases to NITS. With one utility, the January 2015 effective rate was almost 70 percent higher than the rate effective in 2013.
Although not as significant, other utilities saw a 40 percent increase to their rates effective June 2015 in comparison to January 2014. Noticeable year-to-date changes in TEC were observed in one utility, which had an increase of 245 percent. To contextualize this, the 70 percent rate increase for a small commercial customer with an average monthly peak of 300KW would result in an increase from about $1,300 to $2,300 in monthly costs.
Strategies for Managing Transmission Costs
Constellation offers three different products to manage transmission costs. They are:
- Fixed Price Transmission: This product allows locking-in a fixed rate for the term of the contract. The monthly transmission cost is based on an effective published transmission PLC (Power-Line Communication), at the time the contract was signed, and a fixed transmission rate. In New Jersey, a product called “Included in Price” is offered, which means that all costs included will remain constant for the existing term of the contract and may only be subject to change as a result of a Change in Law.
- Pass-Through Transmission: This product allows you to pass through transmission where the monthly transmission cost is based on effective published transmission PLC and current transmission rates.
- Price-Adjust Transmission: With this product, the monthly transmission cost is based on contract price at current prices and quantities, but any future incremental changes to transmission costs, upward or downward, are passed through. The transmission charge is a demand-based component in which your load factor impacts the transmission cost. The load factor is defined as the ratio of maximum demand, (monthly, annually or on-peak) to the average monthly usage for the same time period. Industrial and commercial customers that are hourly metered can lower their transmission costs by reducing peak load contribution. For customers without interval data, the transmissions PLCs are usually established using profile classes that are based on the company’s tariff rate classes and billing date. Constellation offers a number of unique solutions to help you manage transmission costs.
To learn more about our solutions for managing energy prices, contact us today!
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Published: August 20, 2015