(877) 343-9044

PJM Announces Record High Capacity Charges: Here’s What You Need to Know

PJM Announces Record High Capacity Charges: Here’s What You Need to Know About Capacity Charges and How to Minimize Their

See More

PJM Announces Record High Capacity Charges: Here’s What You Need to Know About Capacity Charges and How to Minimize Their Impact on Your Electric Bill

If you follow energy news or even general news, you’ve probably heard about PJM’s record-high increase in capacity charges. 

But unless you’re deeply familiar with the intricacies of the energy market, finding lower energy rates, and capacity charges, you may not fully understand what this means and how it will impact your electricity bill in the future. 

In this article, I’ll cover PJM and its critical role in delivering electricity safely across one of the largest regions of America’s power grid. I’ll also explain and discuss capacity charges and how you can minimize the impact of their recent rate hike. 

Let’s start with the basics. 

What is PJM?

PJM stands for Pennsylvania-New Jersey-Maryland Interconnection.

Simply put, PJM is the most extensive power grid in the U.S.

So, what is PJM?

PJM is a Regional Transmission Organization (RTO) that plays a vital role in the American electric grid system. It oversees the movement and wholesale sale of electricity in 13 states and the District of Columbia. 

This includes parts of the electric grid spanning from Illinois to Virginia and New Jersey to North Carolina. 

PJM ensures the reliability of the high-voltage electricity grid and manages the electricity marketplace, where power is bought and sold. Its efforts help maintain grid stability and build stable economic efficiency across one of the largest interconnected electric systems in the world.

What is PJM

What is PJM?

  • PJM is the largest RTO in the U.S. servicing over 65 million customers.
  • It’s 1,400 power generation units produce over 183,000 megawatts.
  • It operates more than 88,000 miles of high-voltage transmission.
  • PJM operates in all or parts of Pennsylvania, New Jersey, Maryland, Delaware, Ohio, Michigan, Illinois, Indiana, Virginia, West Virginia, North Carolina, Kentucky, Tennessee (a small piece), and the District of Columbia.

PJM Announces Record High Capacity Charges

PJM recently announced a significant increase in capacity charges for 2025/2026. This announcement has sent ripples across the regions it serves, which include parts of Delaware, Illinois, Indiana, Kentucky, Maryland, Michigan, New Jersey, North Carolina, Ohio, Pennsylvania, Tennessee, Virginia, West Virginia, and the District of Columbia. 

As a critical player in the energy sector, PJM coordinates the movement of wholesale electricity and manages the high-voltage electricity grid, ensuring reliability for over 65 million people.

However, as mentioned above, PJM’s role extends beyond mere coordination; it operates a competitive wholesale electricity market and engages in long-term regional planning. 

PJM’s capacity auction and planning process aims to identify the most effective and cost-efficient grid improvements that will benefit the system economically and in terms of reliability. 

Governed by an independent board and guided by a vision to lead in reliable operations, efficient markets, and infrastructure development, PJM’s recent rate increase signals a likely trend of rising electric prices nationwide.

As other RTOs may follow PJM’s lead, it becomes increasingly crucial for you, the consumer, and especially businesses that consume more significant amounts of power, to understand how these charges are calculated and what steps can be taken to reduce their impact. 

Later in this article, I will discuss the nature of capacity charges, explain why they are integral to our electricity grid, and provide practical tips for managing and lowering these costs. 

But first, let me take a minute to explain what an RTO is and the various RTOs and ISOs that span across America. These RTOs and ISOs ensure every home and business has a sufficient supply of high-quality power. 

Together, RTOs and ISOs form America’s electric power grid. 

Understanding Regional Transmission Organizations (RTOs)

What is an RTO?

A Regional Transmission Organization (RTO) is an entity that plays a vital role in the electricity industry, particularly in overseeing the transmission of electricity across large interstate areas. 

RTOs are designed to ensure the reliability and economic efficiency of the electric grid by managing its high-voltage transmission system. They operate independently of the companies that own the power generation and transmission assets, providing a neutral and impartial grid oversight.

Another word for RTO is ISO.  Today, a power pool, a power grid, an RTO, and ISO are often used to mean the same thing. 

Essential Functions of an RTO:

  • Grid Management: RTOs coordinate the planning and operation of the electrical grid to ensure a stable and reliable electricity supply. This includes managing the flow of electricity over long distances and across state lines, from power plants to local distribution networks.
  • Market Operation: They operate competitive wholesale electricity markets. This allows for the buying and selling of electricity among utilities and power marketers, helping to determine the most cost-effective generation available at any given time.
  • System-Wide Planning: RTOs conduct long-term regional planning that evaluates the grid’s future needs and plans for infrastructure improvements. These plans consider the growth in demand, the integration of renewable energy sources, and the replacement of aging infrastructure.
  • Reliability Standards: RTOs are critical in ensuring national and regional reliability standards compliance. They monitor the grid’s operation and enforce standards to prevent blackouts and other disruptions.

In essence, RTOs like PJM are crucial for the effective management and operation of the electricity grid across multiple states, playing a pivotal role in shaping the future of energy in the United States.

What Are The Main RTOs and ISOs?

Several key Regional Transmission Organizations (RTOs) and Independent System Operators (ISOs) manage various aspects of the electricity grid in the United States. Here are the main RTOs and ISOs in America:

Map of all RTOs in North America
  • CAISO – California Independent System Operator – manages California’s transmission grid and wholesale electricity market. 
  • ERCOT – Electric Reliability Council of Texas – manages most of Texas’s grid.
  • SPP – Southwest Power Pool – before being called RTOs and ISO, organizations that managed the power grid were called “power pools.” SPP serves all or parts of 14 states, including Arkansas, Iowa, Kansas, Louisiana, Minnesota, Missouri, Montana, Nebraska, New Mexico, North Dakota, Oklahoma, South Dakota, a small part of Texas, and Wyoming.
  • MISO – Midcontinent Independent System Operator – operates in parts of 15 states in the Midwest and South, plus some parts of Canada. 
  • PJM – PJM Interconnection – coordinates wholesale electricity movement in parts of 13 states in the Midwest, Mid-Atlantic, or Northeast 
  • NYISO – New York Independent System Operator – covers New York City and the rest of the state 
  • ISO-NE – ISO New England – includes Vermont, New Hampshire, Massachusetts, Connecticut, Rhode Island, and most of Maine.

As you can see, RTOs and ISOs play critical roles in ensuring the electricity supply’s stability, reliability, and cost-effectiveness across their respective regions. They manage both the electric grid’s day-to-day operations and longer-term infrastructure planning.

Now that I’ve discussed PJM’s significant rise in capacity charges and explained the role of RTOs and ISOs in managing the electricity grid, let’s examine capacity charges and how they impact your electric bill. 

More importantly, with these charges set to increase substantially next year, businesses and consumers alike must learn strategies to avoid paying more than necessary. 

Non-RTOs and ISOs

You will notice in the above map, not all states are covered by an RTO or ISO. These other areas are non-RTO regions and are more regulated. 

The non-RTO regions — Southwest (orange), Northwest (gray), and Southeast (brown) — are overseen by several vertically integrated utilities or Federal systems.

These utilities, granted monopoly status in their territories, are regulated by state Public Utility Commissions (PUCs or PSCs). They operate under a “cost-of-service” revenue model that ensures a guaranteed rate of return on investments.

This model promotes capital-intensive solutions that may lack efficiency, innovation, and consumer choice.

Although these utilities do not participate in wholesale power markets, they must adhere to regulations for open transmission access.

Power exchanges between utilities typically occur through bilateral agreements or Power Purchase Agreements (PPAs). They maintain control over their transmission systems, often preferring their power generation, which can disadvantage more cost-effective, cleaner, or locally produced energy from competitive suppliers and marketers.

What Are Capacity Charges - Understand The Second Largest Component of Your Electric Bill

Capacity charges on an electric bill are fees that utility companies charge their customers to ensure enough power is available to meet peak demand periods. Here’s how they generally work:

  1. Purpose: Capacity charges help cover the costs of maintaining and operating power plants and other infrastructure necessary to provide electricity, especially during peak usage.
  2. Calculation: The charge is usually based on the customer’s highest peak demand for electricity during a specific period, typically during the system’s peak hours. This peak demand measurement can be assessed during the highest usage hour of the month or a designated peak demand day.
  3. Billing: The utility calculates the capacity charge as a rate (dollars per kilowatt-hour, kWh, or kilowatts, kW) multiplied by the peak power demand. This means if a business or a large consumer has a month when their usage is higher than usual, their capacity charge will be higher for that month.
  4. Purpose of Measurement: Measuring and charging based on peak demand incentivizes customers to manage and reduce their peak power usage, helping to stabilize the overall power grid and reduce the need for utilities to invest in additional capacity.

This fee is part of an electric bill’s broader demand charge component, separate from the actual energy consumed (measured in kWh) charges. Reducing peak demand lowers these capacity charges and benefits the grid by alleviating stress during high usage times.

To help you fully understand this, here are three examples of different kinds of small businesses and the periods during the day when they might typically experience their highest electricity usage:

Restaurants and Cafés

  • Peak Electricity Usage: Late afternoon to evening (4 PM to 10 PM). This period often aligns with peak dining hours, especially for dinner service. During this time, kitchens are in full operation with all cooking appliances in use, heating and cooling systems are adjusted for comfort, and lighting is fully utilized to create an inviting atmosphere for diners.

Retail Stores

  • Peak Electricity Usage: Midday to early evening (12 PM to 7 PM). Retail stores typically see the most foot traffic during these hours, which coincides with the general business hours and post-work shopping sprees. Enhanced lighting, air conditioning or heating, and electronic payment systems increase electricity use during these peak hours.

Office-Based Businesses (e.g., Law Firms, Consulting Agencies)

  • Peak Electricity Usage: Morning to early afternoon (8 AM to 2 PM). These businesses generally operate during standard office hours, with peak usage occurring when employees are most active. The combined use of computers, printers, copiers, lighting, and heating/cooling systems during these hours increases electricity consumption.

Each business type has distinct operational hours and patterns, influencing its energy consumption peaks. Managing and understanding these patterns can help strategize effective ways to mitigate peak demand charges.

How to Minimize The Impact of Increase Capacity Charges

Small businesses can take several practical steps to minimize capacity charges on their electric bill, focusing on reducing peak demand. Here are some strategies they can implement:

  1. Peak Demand Awareness: Understand when peak demand periods occur (often during the afternoon and early evening on weekdays) and try to reduce consumption during these times. Utilities may provide this information on their websites or through customer service.
  2. Energy Efficiency Upgrades: Invest in energy-efficient appliances and lighting. Upgrading to LED lighting, energy-efficient HVAC systems, and modern appliances can significantly reduce energy consumption, especially during peak times.
  3. Demand Response Programs: Participate in demand response programs offered by utility companies. These programs incentivize businesses that agree to reduce their power usage during peak demand periods.
  4. Energy Management Systems: Energy management systems monitor and control energy use. These systems can automate reducing power consumption during peak hours by controlling lighting, air conditioning, and other power-intensive operations.
  5. Shift Energy Usage: Shift energy-intensive operations to off-peak hours. For example, run manufacturing equipment, charge electric vehicles, or perform other high-energy tasks during early or late evenings.
  6. Onsite Generation: Consider installing renewable energy sources like solar panels or a small wind turbine. Onsite generation can offset some of the energy drawn from the grid during peak times, reducing peak demand charges.
  7. Regular Maintenance: Keep HVAC and other systems well-maintained. Poorly maintained equipment can use more power and operate inefficiently, particularly during high-demand periods.

Implementing these strategies helps reduce capacity charges and contributes to overall energy cost savings for small businesses.

How Energy Professionals Can Help Your Business

In today’s fluctuating energy market, managing electricity costs is crucial for small business success, especially with the anticipated rate increases for 2025 and 2026.

At Energy Professionals, we specialize in helping businesses in deregulated states secure lower energy rates from retail energy suppliers.

By negotiating the best possible rates and locking in these costs with fixed-rate contracts, we help protect your business against future price hikes, ensuring more predictable energy expenses.

Finding Lower Rates and Fixing Costs: Our expert team works closely with small businesses to assess current energy usage patterns and compare rates from multiple suppliers.

This enables us to find the most competitive rates that align with your specific needs, helping you pay less for the energy you use.

Locking these rates with long-term contracts protects against the rising costs many predict for the coming years.

Demand-Side Management Programs: Energy Professionals offers comprehensive demand-side management services in addition to securing lower rates. These programs are crucial for businesses in both deregulated and regulated states.

We provide timely alerts that help you reduce electricity usage during peak demand periods. Reducing consumption at these times can significantly lower capacity charges, and businesses are financially rewarded for such reductions in many states.

This leads to cost savings and becomes a revenue opportunity, as you can earn money back for participating in these demand response initiatives.

Energy Efficiency Solutions: We also guide businesses in reducing overall electricity demand through energy efficiency solutions.

Many states offer incentives such as rebates or direct funding for energy-efficient upgrades.

Whether upgrading to LED lighting, optimizing HVAC systems, or installing energy management software, these improvements reduce energy bills. They may be partially or fully subsidized, making them more accessible and beneficial.

Get Expert Advice

Navigating the complexities of energy management requires expertise and strategic planning. Contact Energy Professionals today to speak with one of our energy consultants. 

We’re ready to help you survive the upcoming changes in energy rates and thrive by significantly reducing your operational costs and enhancing your business’s energy efficiency.

James Lightning
Senior Editor, Energy Professionals 
(844) 674-5465
info@energyprofessionals.com

Choose Your Energy Supplier

Energy Professionals is committed to finding its customers the best possible rates on electricity and natural gas. Tell us your location and service type and our energy manager will connect you to the most competitive offers.

Switching to an alternate supplier is easy. There is no chance of service disruption, and you'll continue with your current utility for energy delivery and emergency service. Take a few minutes to discover your best offers, and enjoy the benefits of retail energy in your home or business.

1. Energy Type

2. Service Type

3. Zip Code

LOGO