Managing Capacity Charges


Overview

Municipalities pay for more than just the electricity they actually use; they also pay for capacity. In order to ensure that there is enough electric "capacity" available on the grid to meet demand in future years, the grid operator, ISO-New England, assesses a capacity charge. ISO-New England uses that revenue to pay energy generators if they meet future generation commitments. Capacity charges are part of the electricity supply contract, and they may be passed through directly to the municipality or they may be incorporated into a fixed-rate contract. In either case, there is an opportunity for substantial savings, sometimes on up to 30% of the bill.

Each year, the electric grid experiences its highest demand for the year (annual peak) usually in July or August. The amount of energy being used by your facility during the annual peak determines the quantity of capacity you will be charged for in the following year (June 1 to May 31). ISO-New England provides forecast data that helps predict the day and hour. Given the right forethought, this provides municipalities the opportunity to save big by "load-shedding," or reducing consumption, during the grid's expected annual peak.

The Looming Risk

The price of capacity is set to double next year (June 1, 2017 – May 31, 2018) in all regions and then decrease, but still remain high for the next two years (See table below). In communities with pass-through Capacity Costs, this represents a major cost increase. For example, for a medium-sized municipality with 1 MW of peak demand, this could mean an increase of nearly $140,000 through the end of May 2018. By load shedding, a municipality might cut their peak in half, which could effectively prevent total capacity charges from rising. See the Resources section below for an Excel calculator to estimate your cost and savings potential.

 

 

MAPC's Notification Program

MAPC’s daily notification program organizes forecast data from the grid operator, ISO-New England, and sends out an email every morning assessing the risk of the annual peak occurring that day and, if so, at what time. In addition, the notifications include an outlook for the next week so municipalities have time to plan ahead. With the price of capacity expected to nearly double in certain load zones, MAPC’s daily notifications are an invaluable tool in helping municipalities manage their energy costs.

For an explanation of the Risk Levels and their meanings, click here

To subscribe to MAPC’s daily notifications, contact Patrick Roche, Energy Coordinator, Clean Energy Division.

 

Applicability: Contracts and Accounts

Check your supply contract with your utility (or with your broker or supplier) to see how capacity charges are handled.

  • Pass-Through Contracts: Because ISO-NE’s year is June 1- May 31, load shedding this summer will reduce bills starting next June 1.
  • Fixed-rate Contracts: The supplier assumes the risk of the capacity charge in this case, and the fixed-rate reflects that risk. By load shedding, a municipality will lower its peak and appear less risky to suppliers, which can result in lower fixed-rates prices for future contracts. 

Only accounts that have time-of-use (TOU) meters can report the usage during the annual peak hour. These accounts can be identified by their rate classification:

• National Grid: G-3

• Eversource: T-2 also known as B7, B8 & G8

                        T-1 also known as B5

                          G-3 also known as B3 & B6

It is important to note that billing codes can vary by region and do change over time, so there could be other codes that appear for time-of-use accounts.  The most reliable way to identify all of these accounts is to work with your supplier, broker or utility. Time-of-use meters typically only exist on the largest users of electricity in town, such as the High School, Middle School, and sometimes the City or Town hall, Senior Center, and Library.

Resources

1. Estimated and Actual loads on the "Highly Likely" day of Summer of 2015

2. Real-time data from Acton-Boxborough School District's load shed on 7/20/2015

3. To help calculate the potential savings on your bill from load shedding, use this calculator.

4. Load shedding strategies

5. Background information on Capacity Charges and how to assess the risk and timing of the Annual Peak:

a. Webinar: Addressing the Looming Capacity Charge Increase

b. Slides: Addressing the Looming Capacity Charge Increase

6. Updates on assessing risk and discussion of load shedding strategies with municipalities:

a. Webinar: Capacity Charge Load Shed Follow Up

b. Slides: Capacity Charges and Load Shedding

Questions

To subscribe to MAPC’s daily notifications or for more information on this project, contact Patrick Roche, Energy Coordinator, Clean Energy Division, MAPC.