The Cost of Peak Energy

Stacked Coins and a Fake Green Arrow Pointing UpwardsMadison pays up to $3 million dollars a year in Peak Demand energy costs. And this cost is calculated based on our electric consumption on just the 5 hottest, peak consumption hours. If we can all voluntarily curtail our electric consumption on the few peak hours this summer, we can save the Borough up to $100,000 or more per year.

Calculation Works

All of the electricity that is transported in our region is coordinated by a Regional Transmission Organization called PJM. Originally named in 1956 for the public electric utilities in Pennsylvania, New Jersey and Maryland, PJM manages the high-voltage electric grid and wholesale energy market that now serves 13 states and the District of Columbia.

Steam Rising From Power PlantOn the very hottest days of the summer, the power companies bring extra power plants online to satisfy demand. PJM created a pricing model to attract long term investments in these power plants to insure that there will be reliable electricity for the region on the hottest days of the year. The power plants dedicated to reliability are paid based on the PJM Reliability Pricing Model and the over $2.3 million charge that Madison pays goes to that program.

The over $2.3 million charge we will pay this year is calculated in part on the amount of energy Madison consumed on the five hottest peak consumption hours from last summer. If we can curtail electric consumption on just the hottest hours this year, then Madison will pay lower peak charges for all of next year.

Actual Calculation

  • (365 days) x (the RPM rate) x (Madison's Factor)

The RPM rate, is the auction rate established by PJM (i.e. the per megawatt rate paid to the extra power plants that are reserved and brought on line to satisfy the electric needs on the highest peak days). The RPM rate is set for one year and runs from June 1 - May 31. We can't control this. 365 is the number of days in a year, and we can't control this either.

Madison's Factor

This is calculated by averaging the amount of electricity consumed by Madison on the 5 hottest hours of the previous year.

A Calculator in HandCalculation

  • RPM Rate = 196.5264
  • Madison Factor = 43.404 megawatts
  • (365) x (196.5264) x (43.404) = $3,113,461.60, which would be the Peak Demand Charge paid by Madison for one year. 

If we can reduce the amount of energy used on the five hottest hours by just 3%, we can reduce the peak energy charge by over $80,000. Remember, we are not asking you to not use electricity. We are just asking you to divert your use of electricity from these peak hours.

If you have questions, please feel free email Assistant Administrator and Chief Financial Officer Jim Burnet.