Capacity Isnt Just Another Line Item - It's the Hidden Risk Most Energy Contracts Don't Explain

Capacity Isn’t Just Another Line Item — It’s the Hidden Risk Most Energy Contracts Don’t Explain

If you’ve reviewed an electricity contract recently, you’ve probably seen the words:
“Fixed All-In Rate.”

It sounds simple. Predictable. Safe.

But buried inside that promise is a single cost component that has quietly become the largest source of future price risk in the PJM energy market:

Capacity.

And unless you know exactly how your supplier treats it, your “fixed rate” may not be as fixed as you think.

Imagine the power grid like an airline.

Energy is the fuel used during the flight.
Capacity is the airline reserving enough planes ahead of time so passengers aren’t stranded.

Even if no one boards the plane, the airline still pays to have it ready.

The grid works the same way. Grid operators pay power plants to be available — just in case demand spikes during extreme heat or cold. That “reservation cost” is called capacity.

And right now, that reservation cost has surged.

Recent PJM capacity auctions cleared at historically high levels, reflecting tighter supply, growing demand from data centers, and fewer dispatchable generation resources available when the grid needs them most.

Those costs flow directly into commercial electricity contracts.

The most important detail most contracts don’t clarify

Capacity operates on a fixed calendar known as the PJM Delivery Year, which runs from:

June 1 through May 31

Think of it as a financial “season” for capacity pricing.

Right now, capacity pricing is fully known and published through May 2028.

This creates a critical dividing line.

Contracts that end before that date can be fully hedged.
Contracts that extend beyond that date may carry adjustment risk — depending on how the supplier structures the agreement.

And here’s the key:

Not all “fixed rate” contracts handle this risk the same way.

Our team recently completed a deep dive across multiple national suppliers

We asked a very simple question:

When suppliers say capacity is “included for all known values,” what exactly does that mean?

The answers revealed a wide spectrum of approaches.

Some suppliers fully hedge capacity costs for the entire contract term — even absorbing market volatility internally.

Others hedge only the currently published periods, reserving the right to adjust once new capacity pricing is released.

Still others use hybrid structures, where certain capacity-related variables may still move under specific conditions.

On the surface, these contracts can look identical.

But structurally, they are not.

And that difference can materially affect long-term price stability.

Why this matters now more than ever

Capacity costs have become one of the fastest-moving components of commercial electricity pricing.

In prior years, capacity represented a relatively small portion of total supply costs. Today, it can account for 20% to 40% of the total supply rate — and in some cases, even more.

This means how capacity is treated in your contract can directly influence whether your rate remains stable… or shifts unexpectedly.

It’s not about whether capacity exists — it always does.

It’s about who carries the risk.

You, or the supplier.

What we’re advising clients today

Because capacity pricing is fully known through May 2028, this creates a strategic opportunity.

Clients can lock contracts that align with this published window and eliminate uncertainty tied to future auction outcomes.

This allows businesses to secure predictable energy costs while preserving flexibility to reassess the market once the next capacity cycle becomes clearer.

Think of it like locking your mortgage rate when interest rates are known — instead of leaving it floating into unknown territory.

The goal isn’t simply to lock longer or shorter.

The goal is to lock smarter.

The bottom line

Capacity is no longer just another technical detail in an energy contract.

It’s one of the defining factors separating truly fixed pricing from pricing that only appears fixed.

The good news is that today’s market still offers opportunities to secure stability — if contracts are structured properly and aligned with known capacity cycles.

At Ananta Energy Source, our operations team continuously analyzes supplier contract structures, auction outcomes, and market signals to ensure our clients are positioned with the most stable and strategic options available.

Because protecting our clients isn’t just about finding the lowest rate today.

It’s about protecting them from the risks they can’t see tomorrow.