'Capacity Cost' And Your Electric BillComEd bills went up roughly 10 percent in June, and theyíll stay that way for a year, even though electricity prices are actually down right now. So what happened? Largely itís because those lower prices were overtaken by a rise in "capacity cost." The good news is that thanks to reforms pushed by CUB and other consumer advocates "capacity cost" is expected to plummet in 2011. This fact sheet will explain what "capacity cost" is and how it impacts our electric bills.
What is "capacity cost?"
Why don't I see "capacity cost" on my power bill?
Capacity cost is not a line item on ComEd bills.* It's rolled into the "Electricity Supply Charge." Part of the charge includes the cost for the actual electricity purchased by the Illinois Power Agency (IPA), the state agency that manages power buys for ComEd. For the second straight year, the IPA secured lower power prices for ComEd customers. But that wasn't enough to overcome this yearís increase in capacity cost, which also is included in the "Electricity Supply Charge."
*NOTE: Unlike any other ComEd customers, those in the Real Time Pricing program do pay a ďCapacity ChargeĒ line item. The whole idea behind Real Time Pricing is that customers pay the actual price of power at the moment they use it so there should be no need to pay capacity cost. Plus, Real Time Pricing cuts down on the need for capacity by reducing demand during peak times. See CUBís Real Time Pricing fact sheet.
Does capacity cost have anything to do with ComEdís recent $396 million rate-hike request?
No. As stated above, the capacity cost is part of the electricity supply charge, which ComEd simply passes on to customers with no markup. ComEdís $396 million rate-hike request deals with a different part of the billódelivery charges. Thatís what the company charges customers to deliver power to homes, plus a profit. Delivery charges take up about a third of electric bills. The price for the actual electricity takes up roughly two-thirds. CUBís legal and policy team is preparing to do a thorough review of ComEdís request and to fight every penny the company canít justify.
Why is capacity cost so high?
Capacity cost is not set by the IPA, but by a formula supported by power generators and approved by the Federal Energy Regulatory Commission (FERC). The formula, called the Reliability Pricing Model (RPM), was adopted in 2007 to give generators incentive to build enough power plants. But thereís no requirement that the generators use the extra cash to build power plants. CUB has argued for years that the RPM is skewed to assure generators windfall profits.
What is an RTO and how does it affect my power bills?
Part of this problem is connected to the fact that ComEd is part of a Regional Transmission Organization, or RTO, largely made up of Eastern power companies. The RTO is kind of like an air traffic controller for electricity. Run by electric industry representatives, it coordinates the flow of electricity over high-voltage transmission lines after that electricity leaves the power plant and before it gets to your neighborhood. ComEd chose to be part of a transmission organization called PJM (Pennsylvania, Jersey, Maryland) Interconnection. The problem is that East Coast capacity costs tend to be much higher than in Illinois, which has an abundance of relatively cheap electricity produced by the nuclear power plants owned by ComEd parent Exelon.
Customers of Ameren, the electric company serving central and southern Illinois, are part of a different RTO, called the Midwest Independent System Operator (MISO). MISO has a much lower capacity cost and doesnít rely on the RPM. In fact, Ameren customers are seeing a slight decrease in their electric bills this summer.
So how long will we have to pay high capacity costs?
Thatís the good news. Capacity cost for a given year (June to June) is set three years in advance, so CUB knows that the price is set to plummet in the next couple of years, thanks to reforms pushed by CUB and other consumer advocates. For example, the state developed programs to encourage large power users to reduce peak demand. Currently capacity cost is $172 per megawatt (MW), but in June of 2011, itís expected to drop to $100 per MW, what it was before the increase. In 2012, itís expected to plunge to $16 a MW, and it will be set at $28 per MW the following year.
What can I do about capacity cost?
In the meantime, donít wait for somebody else to fix the problem. Take power over your power bills! CUBEnergySaver.com has hundreds of money-saving actions you can take. Itís been showing Illinois families how to cut their bills by an average of $200 a year. Plus, it has a rewards program that allows you to cut your electricity usage and earn points for thousands of free or discounted items, such as museum passes, movie tickets, and gift cards, at local and national businesses. Itís free. Just visit CUBEnergySaver.com and follow the directions to begin saving money!