You have probably been receiving emails regarding capacity costs, letting you know there will be an 800% increase starting next June. First, it is important to understand what capacity is and what has changed before you can figure out how you can mitigate some of the increase.

What Is Capacity?

It is a pooled utility charge that goes towards operating the national grid during times of high usage. In other words, grid reliability.

Capacity is part of your electricity supply. So, if you have a fixed all-in contract, this is part of the rate you are already paying.

It is also measured by demand, so on the days of highest capacity or highest demand, think of one of the hottest days of the year. When we all get home between 4 and 6 o’clock and crank our A/C and turn on all of our appliances, this really creates a spike of demand on the grid. During these times, there has to be enough infrastructure and generation to supply electricity to everyone who’s demanding it from the grid.

Traditionally, capacity is 15% of your total cost, but with the recent changes, it has gone up quite a bit, representing a larger piece of the pie at 30-40%.

What Has Changed?

Capacity costs are going up due to a supply-and-demand issue. Our demand for electricity is growing faster than we can handle, largely due to data centers (AI). As we incorporate AI more into our daily lives, the demand for electricity will continue to grow, possibly keeping capacity prices up.

Starting June 1^st, 2025, the new cost per megawatt day is $270, an increase from $29 in 2024. This could be painful, as it could impact the electric budget by 10-15%.

When capacity costs were higher in the past, we also had some of the lowest energy prices of all time, so you really didn’t feel it on a per-kilowatt-hour rate basis.

But going forward, we will start feeling more of that impact.

What Can You Do?

There are ways you can help reduce budget impact.

• Demand response – receive payouts for reducing your demand
• Peak Load Management – the voluntary lowering of actual usage during the highest peak days
• Efficiency projects – lighting, on-site solar, building automation systems, and energy audits
• Supply considerations – strategic purchasing and budgeting appropriately

Feel free to contact any of our advisors if you have any questions or would like to find ways to reduce the impact on your budget.