How a Hot Day Can Make or Break Your Budget

June 18, 2018 was really hot. We saw it coming. 

Last month, Beau Gjerdingen, our in-house meteorologist, predicted that we would see above-average temperatures this summer across the United States. We already know that May was a scorcher; according to the National Oceanic and Atmospheric Administration, this year was the warmest May since we began recording national temperatures 124 years ago. North American coastal regions, in particular, are set to heat up. And this heat isn’t letting up any time soon: the NOAA’s outlook for July, August and September predicts an up to 60 percent probability that most of the coastal and Western U.S. will be hotter than normal. 

The real cost of peak heat days

If you’re managing energy in your business, high temperatures are worth paying attention to. Why? Because of peak load days.

Peak load days, or peak load hours, are times when electricity demand on the grid spikes. They usually occur on extra-hot summer days when people use more electricity cranking up their air conditioners and fans. But do you know how costly these days can be for large energy consumers? 

Your energy consumption during those peak times, called your Peak Load Contribution (or PLC), is used to determine the “capacity” line item on your energy bill. Energy grid operators (such as RTOs and ISOs) calculate your capacity charges based on how much energy you consumed during just a handful of peak hours from the previous year.

June 18 wasn’t just really hot – it might have been one of the hottest.

As Beau Gjerdingen predicted: “Strong humidity surging into the eastern US, combined with afternoon highs in the 90s and low chances for rain across the entire PJM footprint are forecast to produce one of the top 5 peak demand days of the summer today.”

And if June 18 was a peak load day, large energy consumers like your organization may get slapped with charges next year based on how much energy you used yesterday.

So where’s the silver lining?

We already mentioned that your capacity charge is calculated according to how much energy you use during peak load days. If you knew when those days were predicted to happen, you could slow down operations and use less energy. If your energy pricing is structured the right way, the potential for savings is immense - especially during a hot summer like the one that’s coming up. For many large organizations, PLC curtailment savings can represent tens to hundreds of thousands of dollars or more. 

Direct Energy Business is one supplier that offers a solution to your capacity charge woes. It’s called Fixed Energy Plus. This pricing structure allows customers to benefit from capacity savings year-over-year. (Unlike many traditional fixed rates where you’re locked into a price, savings or not.) Fixed Energy Plus customers also receive alerts of forecasted peak load days. 

So if June 18 turns out to be a peak load day, what would that mean for your business? For starters, if you didn’t curtail your energy use, it might mean a high capacity charge on next year’s bills. 

But there’s more.

According to Direct Energy Business strategist Tim Bigler, “PLC values have been increasing recently. For example, the 2021-2022 PJM capacity year prices were 83 percent higher than the prior year.” 

In addition to expecting a hotter-than-normal summer, some regions are experiencing a general upward trend in overall capacity charges. In other words, the incentive for businesses to manage usage on peak load days is growing.

A word to the wise from Direct Energy Business President John Schultz:

“With hotter-than-normal weather forecast for summer in the PJM region, now is the time to for businesses to be thinking about how to reduce their electricity bill. Fixed Energy Plus provides our customers with new levels of transparency into the bill, access to industry leading software to monitor usage in real time and the tools to help them manage their spend with confidence.”

If we had to guess, we’d say there’s another potential peak load day coming up soon.

Download our newest report "Electricity is cheap, so why is my bill more expensive?" to learn how you can save money by curtailing your usage on peak load days.