The terminology in energy contracts can be confusing and unless you understand the conditions of the contract, you may be in for a surprise when the energy bill comes due. Several different components make up the supply rate, with the congestion charge being one of them. Depending on the type of rate plan you choose, the congestion charge can have a significant impact on the overall supply rate that is being charged to the customer.
The congestion charge deals with the energy that is being transferred onto the power lines. If too much power is being transferred onto the lines, it will cause the lines to be overloaded. Overloading can have negative impacts on certain segments of the grid that can lead to shortages, line breakage, and even power outages.
How Electricity Markets Handle Congestion
Thanks to changes in technology, power grids are more advanced than ever before. Electricity markets can detect segments of the power lines that are overloaded and reroute the energy onto other pathways to alleviate the congested segments. This method will ease the tension and prevent power outages before they can occur.
Another method of reducing congestion is to limit the power generators produce. For example, the Electric Reliability Council of Texas (ERCOT), may pay generators to limit the amount of power that is produced. These expenses are then passed onto the end-user or the customer.
How the Congestion Charge Affects the Supply Rate
More Retail Energy Providers (REPs) are providing options to its customers on how to have the congestion charge incorporated into the supply rate. These two options include making the congestion charge a fixed component of the supply rate or having the cost as an add-on charge. These two options can have a significant difference in the price you pay for electricity. So which option is right for you?
Congestion Charge as a fixed component of the supply rate – If the customer chooses this option, they will be fixing the price of the congestion into the supply rate. This will prevent any fluctuation in the total supply rate charge and protect the customer against volatility in the energy market. For example, if the total supply rate is 7 cents per kWh and the customer consumes 1,500 kWh then their charge will be $105. If the following month the usage goes up to 2,300 kWh, then the customer will pay $161.
Congestion Charge as an add-on component of the supply rate – If the customer goes with this option, they will be paying the real price of congestion as it fluctuates each month. The total supply rate will change and will be dependent on the costs of congestion for that particular month. Energy suppliers may encourage customers to go with this option.
An important factor to consider when choosing the option that is right for you is knowing the historical costs of the congestion charge in your specific service area. In general, better improvements to the power grid over the last few years have helped make managing congestions costs more efficient.