Understanding Your Power Bill: Transmission Costs

Understanding your power bill is an important part of being an educated consumer.

There are several key components that make up your power rate: Generation, transmission and distribution.

Each of these components has its own cost along with other related charges, such as capacity costs. In this post, we’ll take a look at transmission. We’ll examine what it is, how it is calculated and what you can do to manage these costs.

What Is Transmission?

The image below shows transmission as the “middleman” between power generation and distribution.

Source: Constellation

Transmission refers to the movement of electricity over long distances through interconnected lines that form a network, known as the grid. It is regulated by the Federal Energy Regulatory Commission (FERC) and operated by an independent system operator (ISO) or regional transmission organization (RTO.) Some examples of these operators include PJM, the Electric Reliability Council of Texas (ERCOT), which manages the flow of electricity to approximately 24 million customers across the state, and the Midcontinent Independent System Operator (MISO), which manages electricity across 15 states. These organizations assist with planning and operational functions of the power grid and ensure all customers have access to a reliable supply.

They also facilitate competition among wholesale suppliers and protect consumers from market manipulation.

How Are Transmission Costs Calculated?

The ISOs or RTOs work with transmission owners to plan and manage the operation, maintenance and expansion of transmission resources. Typically the transmission owners are the utilities. This is the case in most of PJM. They provide their annual costs of the transmission systems to the ISO or RTO.

The annual dollars are then spread over the demand value across the zone, known as the network service peak load (NSPL). The NSPL is calculated using a zone’s five peak hours of the past year. The peak hours vary by zone. In recent years, several utilities have used peak hours from the most recent winter as well as summer months. Once a zone’s peak hours are defined, the utilities calculate an NSPL for each customer based on their usage in these hours.

The chart below shows the dollar values that the transmission owners file with PJM to maintain the transmission system (annual transmission revenue requirements). The network integration transmission service rate shows those annual dollars per megawatt of load in that zone. The last column shows those dollars per day, per megawatt.

As a customer, the dollar value per megawatt day is multiplied by your NSPL for each day of service. Though, most small to midsized customers use far less than a megawatt of energy and are charged a fraction of this rate. Transmission costs also factor in the expense of building new infrastructure or upgrading it. The cost of transmission upgrades is passed on to load-serving entities in each zone. Then it’s divided between customers in proportion to their usage.

What Can You Do To Manage Transmission Costs?

Transmission costs vary depending on many factors, including capacity, weather, which can affect demand for electricity and the need for upgrades. While customers can’t control those factors, they can take steps to manage transmission costs. One option is to choose a plan that allows you to purchase all or a portion of your energy at a fixed price—including transmission, capacity and ancillary costs.

Constellation offers various commercial energy pricing solutions depending on your state. Those solutions include Fixed Pricing, Index Pricing or Index Plus Block, which allows you to fix a certain volume of your energy usage at a specific rate while locking in transmission costs and other unforeseen expenses.

It’s important to remember that electricity transmission is just one aspect of your energy bill, so these pricing solutions are just one part of an integrated energy management strategy.

To learn more about our solutions for managing transmission costs as part of a larger energy management strategy, request a quote today.