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44 The Authority | August 2025 Another primary driver of the capacity cost increase is that Federal Energy Regulatory Commission (FERC) authorized significant changes to how PJM models the capacity Base Residual Auction (BRA), which comes into effect in June 2025. The main changes are related to: 1. how PJM models the resource adequacy risk 2. how resource accreditation is calculated 3. early re-entry of the Fixed Resource Requirement entities to the BRA For consumers, this means higher electricity bills, with some estimates suggesting increases of up to 30% . Be aware that fixed capacity costs could be subject to Change in Law implementation by suppliers, in order to pass through these higher costs from June 2025 onwards – World Kinect continues to monitor this situation on behalf of our clients. In addition, given PJM capacity auction delays and the potential for additional market structure reforms, capacity rates are still unknown beyond May 31, 2026. We recommend working closely with your business partner to evaluate the optimal procurement strategy. Managing cost increases: strategies for companies As electricity prices fluctuate, businesses can proactively manage cost increases using these strategies: 1. Peak Load Contribution (PLC)management: PJM identifies the five highest demand hours of the year (known as “5CP hours”) to calculate a customer’s PLC for the following year. By reducing demand during these critical peak hours, customers can lower their PLC and reduce their capacity charges. 2. Demand Response programs: These programs allow customers to be compensated for reducing load during peak periods. This generates revenue that can be used to offset the increased costs. 3. Energy Efficiency investments: Implementing energy-efficient technologies can reduce overall demand and peak usage. Examples include upgrading HVAC systems, installing LED lighting, and optimizing industrial processes. 4. Load Shifting: Organizations can shift energy-intensive activities to off-peak hours when grid demand is lower. This might involve running certain operations overnight or staggering production schedules, or simply shifting loads out of the summer afternoon periods when those 5CP hours typically occur. 5. Battery Energy Storage Systems (BESS): On-site battery systems can store energy during low-demand periods and discharge it during peaks, reducing reliance on the grid during critical hours. Battery storage are excellent tools for displacing load during the 5CP hours, thereby reducing capacity charges. 6. On-Site generation: Using on-site renewable energy or backup generators during peak periods can also reduce demand from the grid and, in turn, capacity costs. 7. Real-Time Monitoring and Controls: Advanced energy management systems provide real-time data on energy usage, allowing for precise control and immediate response during peak demand events. Capacity costs in PJM are a necessary expense to maintain grid reliability, but they can be a significant component of an organization’s electricity bill. Understanding the PJM capacity rules and the difference between demand-based and energy-based charges is crucial for managing these costs effectively. Have a question? Contact us today. S PJM article continued from page 33. Don’t miss out on Demand Response incentives With energy costs rising and increasing grid instability, now is an optimal time for you to capitalize on Demand Response (DR) incentives. Demand Response offers businesses a powerful way to shift or reduce energy use during peak times while advancing sustainability goals. Scan to learn more: Unlocking demand response potential