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What are Peak Load Days and why do they matter?

By Direct Energy Business
a spike in energy usage

Whether you own a small business, run a mid-sized operation or manage a large multi-site company, there’s something we all have in common regarding energy at this time of year – the bills have gone up. 

In the middle of the summer, we’re running cooling at the max. And all of our equipment has to work a little harder in the heat. You’re not just paying more because you’re using more power - demand for electricity is high during the hot summer months. And high demand can cause major electricity price spikes.

For businesses of all sizes, it’s smart to lock in a fixed rate or hedge a portion of your load during the spring before prices shoot up. And if you did grab a good price ahead of the season, it can be tempting to sit back and relax through the summer. 

But for large organizations, there’s one more critical price component to consider: peak load contribution.

If I have a fixed price, why do I need to worry?

Make no mistake: even businesses enjoying a fixed rate or fixed hedges need to consider peak load contribution. Why? Because your electricity consumption during peak times affects your year-over-year capacity charges. And for many businesses, capacity costs can account for 25 percent or more of the monthly bill. It’s often the highest single line item on your bill following the cost of the actual power supply. 

So what is peak load contribution?

Peak load days or hours are times of maximum energy consumption on the grid. At the end of the summer, your local distribution company identifies the highest peak times, and then reviews how much power you consumed during that time. This value is called your Peak Load Contribution, or PLC.

You PLC is used to calculate the portion of your mandatory fees called Capacity. Essentially, your capacity charge represents the cost of reserving enough energy on the grid to meet your maximum energy needs. It’s how the distribution company ensures that there will be adequate power supply to meet demand. 

How much does Capacity actually cost?

Your capacity costs can have a significant impact on the total price you’ll pay. It all depends on how much electricity your business uses on peak load days.  

For instance, large energy consumers in COMED, the utility in Chicago and Northern Illinois, can expect their capacity costs to be calculated as follows:

(Standard Capacity Rate  x  Your PLC)  One-Month Usage
Your Monthly Capacity Rate

In 2018, COMED's standard capacity rate is $6.36 per kilowatt per month. Let's say your organization’s PLC is 1,500 kilowatts, with a one-month consumption of 650,000 kilowatt hours, which is typical for a single-location large business, like a grocery superstore:

($6.36/kW  1,500 kW) / 650,000 kWh  =  $0.01468/kWh

In this example, your monthly capacity rate would be $0.01468/kWh. It seems small. But to find out what this rate means in terms of monthly costs, simply multiply one month of power usage by that rate: 

650,000 kWh  x  $0.01468/kWh  =  $9,541.35

In this example, your capacity cost for one month alone would be $9,541.35. If you use a similar amount of energy every month and don't manage your PLC, that means you’re paying over $114,000 just in electricity capacity charges each year.

Start managing PLC and Capacity costs 

For most organizations, an annual $114,000 mandatory charge is nothing to take lightly. Especially when there are steps you can take to manage and reduce it. 

How can you manage it? By reducing your energy consumption during peak load times. When your usage is lower on peak days – even by a small percentage – you decrease the multiplier that determines your monthly rate.

And what’s more, many organizations already have processes in place to strategically lower energy consumption.


 Related Article: How a Hot Day Can Make or Break Your Budget  Read it >>


Choose a trusted energy partner

Your summertime bills are high. But smart energy managers in large commercial and industrial businesses know that understanding PLC - as well as other mandatory power charges - offers an opportunity to control and minimize total cost. 

But it’s important to work with a supplier who understands your goals and offers the right strategic solutions. Remember that not all electricity pricing structures allow you to recover year-over-year capacity savings. And peak load forecasts aren’t in the public domain until after they happen.

To succeed, you need the right electricity product, weather and market intel, and real-time visibility into your usage.

That's why Direct Energy Business introduced its new-era solution, Fixed Energy Plus. It's designed to help you to manage your entire electricity bill, from transparency into your line items and notifications of forecasted peak load days, to access to real-time power usage statistics. It's a solution to empower you through the summer and beyond.

To learn more about how to manage peak load contribution and reduce your total costs, download our report, “Electricity is cheap, so why is my bill so expensive?”

Download the Report
Posted: August 02, 2018

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