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High PLC Bad, Low PLC Good

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If you read last week's blog post: What is Capacity and Why Should I Care, you know that capacity is the physical ability of generators to produce energy that is delivered. That article explained that without enough capacity, there could be a brown out or black out situation. Regional Transmission Operators (RTOs) and Independent System Operators (ISOs) must assess and resize the amount of capacity needed. Most do this at least annually, but others may do this more often.

How do RTOs know much capacity is needed?
Often this process is done using what is known as a coincidental peak (CP). A CP is usually the hour the entire system is peaking - i.e. “maxing out on energy demand.” Some RTOs measure more than one CP and average them to determine the capacity needed for the following capacity year. In PJM, for example, they use five coincidental peaks (5CP) that are currently measured between June 1 and September 30 each year.

[PJM Interconnection is a regional transmission organization (RTO) that coordinates the movement of wholesale electricity in all or parts of Delaware, Illinois, Indiana, Kentucky, Maryland, Michigan, New Jersey, North Carolina, Ohio, Pennsylvania, Tennessee, Virginia, West Virginia and the District of Columbia.]

Why is this important?
The 5CPs that are calculated this summer will be used to allocate a customer portion of the capacity needed for the entire system for the following year. It’s important to note that these are the five peak hours of the entire system. These are not necessarily the five peak hours of one particular customer. However, if  your business happens to be using a lot of energy during those 5CP hours, the following year your capacity allocation may be higher, which could impact your costs. In PJM, this allocation is known as a Peak Load Contribution (PLC) or your “capacity tag.”  A higher cap tag may mean a higher electric bill. In addition, even if your cap tag is low,  as referenced in the previous article, sometimes the capacity rate (i.e. cost of capacity in the open market)  can be volatile. In the ATSI transmission zone in PJM (which includes Ohio Power, Cleveland Electric, Toledo Edison and Penn Power) this cap tag was approximately $125.99/MW-day. That means for each MW of capacity a customer is allocated a customer pays $125.99 x 365 or $45,986 per year from June 1, 2014-May 31, 2015. This year, that price shoots up to $357/MW-day or $130,305 per year! [VB1] Almost triple! There are tools you can use to help lower your PLC/cap tag and Direct Energy Business can help.

Peak Load Management
A popular way to help lower the capacity portion of your bill is to lower your consumption when the RTO is measuring coincidental peak hours. If you reduce your load during this time, then next year you could help lower your capacity costs for the following year. Direct Energy Business offers a program to help you manage your capacity costs. Contact us for more information at to learn more today!

Want to reduce your load and get paid monthly?
If you have the ability to reduce your load and don’t want to wait until next year to see savings, you can contact the Direct Energy Business Advisory Services team to learn more about demand response programs. Demand response is a program whereby you could earn money* for reducing your load during times of peak demand on the grid. Each RTO.ISO offers different program options however the basic concept is the same: once you are notified of a demand response event, you will be required to reduce your load by an agreeable amount and you will get paid to do so! Email: for more information.

*Revenue from participation in a demand response program is not guaranteed, and participants that violate terms of the program may be subject to penalties. Consult with a Direct Energy Business representative to determine whether demand response is suitable for your organization.

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Posted: May 22, 2015