What are capacity costs?

Capacity is one of the many electric service components affecting energy prices for consumers. Due to how capacity prices are determined, prices can change greatly year-over-year. Since capacity charges can account for up to 25% of your total electricity costs, they are worth paying attention to.

Typically, capacity costs are charged by Regional Transmission Operators (RTOs) to ensure sufficient generating capacity for system reliability. These rates can differ from one utility to the next; therefore, the cost of capacity can vary by location.

These rates are set and fixed annually by RTOs, such as PJM, and are based on your organization’s Peak Load Contribution (PLC), which is set annually and is based on your energy usage during PJM system peak hours. In many utilities within PJM, the PLC is calculated by taking your average demand level during the five highest demand hours for the entire PJM system. See 2022 PLC dates and times in Graph B below.

Can I reduce my capacity costs?

You can lower your capacity costs for next year by reducing your usage during high peak times in 2024, which happens only a few hours a year. You can take control of your demand costs with AEP Energy’s complimentary PeakAdvisory® program where you’ll receive notifications during high-demand days alerting you to reduce your energy usage.  Learn more about our demand management programs.

The graph below shows historical annual capacity rates as established via the PJM auction process for various utilities within the PJM system.

Sources:
PJM – Capacity Market (RPM)
PJM – Load Forecast Development Process

This graph shows the dates and times of PJM’s capacity Peak Load Contribution Coincidental Peaks during the summer of 2023.

Sources:
PJM – Capacity Market (RPM)
PJM – Load Forecast Development Process