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What’s in a Price? Explaining PJM Pricing Components

  • February 26, 2018

There are currently ten Regional Transmission Organizations (RTO) in the United States which coordinate, control, and monitor multi-state electric grids. The PJM RTO covers Delaware, Illinois, Maryland, Michigan, New Jersey, Ohio, Pennsylvania, and the District of Columbia. Within an RTO, there are different utilities that deliver and supply energy to the end user and your total electricity bill will have a delivery portion and a supply portion.

There are currently six components in a New Jersey PJM electricity supply price: energy, transmission, capacity, regulatory charges (currently RPS), line losses, and ancillaries. The percentage breakdown below is for an average commercial property in New Jersey with capacity and transmission load factors of ~50%. What is a load factor?

Energy- 38%

  • Energy is the actual commodity consumed by customers that is generated by power plants. In New York, the majority of energy comes from natural gas but other fuels include hydropower, nuclear, and renewables.
  • 98% of energy is scheduled in the day-ahead energy market and the remaining 2% is the real-time market to make up for any immediate discrepancies in supply and demand from the prior day.

Transmission- 31%

  • Network Integration Transmission Service (NITS)- NITS is used for the transmission of capacity and energy from generating resources to the end user/customer.
  • Transmission Enhancement Charges (TEAC/TEC)- PJM’s Regional Transmission Expansion Plan identifies transmission system upgrades and enhancements to provide for the operational, economic and reliability requirements of PJM customers.

Capacity- 17%

  • PJM’s capacity market is called the Reliability Pricing Model and ensures long-term grid reliability by making sure there are enough power supply resources to meet the predicted future demand. Capacity means there are adequate resources on the grid to ensure that the demand for electricity can be met at all times. Read on to learn more about capacity auctions in PJM.

Regulatory Changes- 10%

  • Renewable Portfolio Standard- New Jersey’s RPS requirements were increased in May 2018 to 35% by 2025 and 50% by 2030. The specified percentage amount of electricity sold in NJ must come from qualified Class I renewable energy sources. RPS requirements also specify that 2.5% of the electricity each year must come from qualified Class II renewable energy sources. Continue reading for a more in depth understanding of New Jersey’s RPS requirements.

Losses- 3%

  • Electricity is transmitted from large power plants to the end-user via transmission and distribution networks. From the generation site to the end user, energy is lost through heat dissipation along the way.

Ancillaries- 1%

  • PJM administers competitive markets for key ancillary services that support and power the electricity system. These ancillary services include reserve sources that provide fast ramping power in the event of a unit or line trip and regulation services, which keep load and generation in constant balance.

For a more in depth review of electricity markets in PJM, download our Electricity Markets Explained report here.