The capacity charges can have a significant impact on the price you pay for electricity every year. Knowing what the capacity charges are and how they affect your billing can help you save money on the electric bill. So, what are capacity charges? Capacity charges relate to the peak-demand of end-users and assuring there is enough energy supply to meet this demand. Think of a hot summer day with manufacturing companies running at full operations while everyone has their AC on full blast. It’s these spikes in demands that drive the capacity charges. Knowing how capacity charges are calculated can help you adjust accordingly and lower these costs on the electric bill.
How are Capacity Charges Calculated?
There are several regional transmission organizations (RTOs) around the country in charge of maintaining the functionality of the power system in their region while assuring the energy gets safely from the generators to the consumers. The Electric Reliability Council of Texas (ERCOT) oversees the power system in Texas while PJM operates in 13 states including the District of Columbia. These RTOs may pay power generators and demand-response customers to meet capacity. Maintaining the balance of supply and demand will assure there is enough energy to meet peak-demand during all times of the year.
To determine capacity rates, RTOs may hold competitive auctions. RTOs will provide estimated peak-usage demands from their respective region to participating bidders. This process assures there will be sufficient capacity during peak-demands throughout the year at competitive prices. The winning bidder will be responsible for providing the capacity resource when needed.
How do Capacity Charges Affect my Electric Bill?
Residential and business customers have some control over the costs they pay for the capacity charges. A customer’s capacity charge is set during the peak-demand periods of the year. Depending on the region, peak-demands may be averaged out through the course of the year. Knowing when these periods of high demand are, a customer can adjust accordingly and lower their usage. A customer’s capacity charge is set once a year. This means taking action to lower the usage won’t immediately be reflected on the electric bill. However, the lower usage recorded during the year will be used to set the customer’s capacity the following year.
Energy suppliers may send out notices to customers when they believe these periods of high demand will be. If you take steps to lower your usage during periods of high-peak demands, you will be rewarded on the electric bill! Some energy suppliers may even send their customers a smart thermostat. During periods of high demand, the thermostat will automatically work to reduce your household’s energy usage.
Comparing Energy Suppliers
If you’re shopping around for energy suppliers, then you need to make sure you’re comparing apples-to-apples. The capacity charges will be part of the supply portion of the electric bill. This is the deregulation portion of the electric bill. The price to compare rate will include all components of the supply charge including the capacity charges. If you’re not asking for the price to compare rate the energy supplier may take these charges out, to make the rate appear lower, and pass them through as a different line item on the electric bill. The customer will need to read and understand the terms and conditions before signing with a supplier!
The advisors at ElectricRateSelect can help with the process. Whether you’re shopping for your home or business we have the expertise and knowledge to help find you the lowest rate without the hidden fees.