PJM capacity tags: last summer decided next year’s capacity charge

The mechanism

PJM identifies the highest system-wide demand hours of the summer — conventionally the five highest, which is why the method is often called 5CP. Each account's demand during those specific hours is used to derive its Peak Load Contribution, or PLC.

That PLC becomes the account's capacity obligation for the following delivery year, which runs from June through May. Capacity charges for the whole of that year scale with it.

The precise derivation, including any loss adjustment and zonal scaling factors, is set by PJM and the relevant utility. Confirm the applicable method for the specific account and zone rather than assuming a general rule.

Why the lag matters so much

The delay between cause and effect is what makes this so easy to miss. An account that ran hard through a heatwave in July receives no immediate signal. The consequence appears in capacity charges starting the following June and persists for twelve months.

By then the operational decisions that set the PLC are long forgotten, and the elevated charge reads as an unexplained cost increase rather than as the direct result of five specific hours.

What can be done, and when

The action is curtailment during the hours likely to be system peaks, which means summer afternoons on the hottest days. As with ERCOT 4CP, the peak hours are only known afterwards, so the practice involves forecasting and curtailing on more days than strictly necessary.

The timing point is critical and frequently missed: the work must happen during the summer that sets the tag, not during the year you are paying it. Once the PLC is set, nothing can be done about that delivery year's capacity charge except to plan for the next one.

This makes early summer the correct time to engage with capacity tag management, and it makes a bill shock arriving the following June entirely un-actionable for the current year.

Capacity tags and supply contracts

The PLC affects what a supplier charges you, because capacity is one of the components in a retail supply price build-up. Whether it is fixed in your contract or passed through varies by supplier and by contract.

This matters practically. If capacity is passed through, reducing your PLC flows directly to your bill. If it was fixed into the rate for the term, the benefit may not reach you until the contract is repriced — which is worth knowing before investing in a curtailment programme.

It is a question worth asking explicitly during any procurement: how is capacity treated, and does a PLC reduction benefit us during the term?

Finding your PLC

It is not usually printed on a standard bill. Your utility or supplier can provide it, and in many PJM zones the utility publishes a process for requesting it.

It is worth obtaining, because it is the single figure that determines your capacity cost and because tracking it year over year shows whether curtailment efforts are actually working.

Common questions

What is a PJM capacity tag?

Also called Peak Load Contribution or PLC, it is a value derived from an account’s demand during the highest PJM system peak hours of the prior summer. It sets the account’s capacity obligation for the following delivery year, running June through May.

How do I reduce my PJM capacity tag?

By curtailing load during the hours likely to be PJM system peaks, which occur on the hottest summer afternoons. The work must happen during the summer that sets the tag; once set, that delivery year’s charge cannot be changed.

When does a PJM capacity tag take effect?

The delivery year runs from June through May. A tag set during one summer drives capacity charges beginning the following June.

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