• 8 min read
Understanding Demand, Capacity, and Transmission in Commercial Electric Bills
Most energy teams watch cents per kWh but overlook non-commodity drivers that can make up a large share of the bill. Three components matter: demand (kW), capacity (tags such as PLC/NSPL in PJM), and transmission. This guide explains how each is calculated and where practical reduction opportunities exist.
Demand (kW): Spikes Set the Pace
Demand charges reflect your highest short-interval usage within the billing period (e.g., 15-minute peak). A single spike can set demand for the entire month. For facilities with large motors, compressors, or process loads, a coordinated start-up plan often yields immediate savings.
- Sequence equipment to avoid overlapping peaks
- Shift flexible loads outside local peak windows
- Track interval data to find recurring peak hours
Capacity: Forward-Looking Peaks
In markets like PJM, capacity costs are allocated based on system peak events (tags such as PLC or NSPL). Your behavior during these coincident peaks can influence the charges you see next year. That’s why proactive peak alerts and operational playbooks matter.
Transmission: Delivering Power
Transmission charges cover the cost of moving power across the grid. Allocation methods vary, but the same principle applies: reducing peaks during relevant windows can soften these charges over time.
Procurement vs. Operations: A Combined Strategy
Commodity procurement sets the price per kWh, while operational discipline shapes demand-dependent components. The best results come from aligning both: right-size your fixed/index position and implement peak mitigation where it’s low friction.
Next, explore structure options in Block-and-Index Hedging Strategies or learn how delivered gas price works in Natural Gas Basis, Balancing, and Storage.
Keywords: demand charges, capacity tags, transmission charges, commercial electricity savings, reduce business electric bill.