Capacity vs Transmission Pass-Through: Which to Fix in a Supply Offer

When you compare commercial electricity offers, the headline number is a per-kilowatt-hour rate, but that number hides a choice the supplier has already made about which cost components it is willing to lock and which it will let float. Two of those components, capacity and transmission, are the ones most often treated differently from one offer to the next. Understanding how they differ, and why a contract might fix one while passing the other through, is what separates a real apples-to-apples comparison from a misleading one.

Both capacity and transmission live on the supply side of the bill, the shoppable side. If that framing is not yet familiar, start with the delivery-versus-supply split and then the capacity, energy, and transmission three-buckets guide, which lays out all three supply components in detail. This guide focuses narrowly on the buyer's decision: when a supplier fixes one of these and passes the other through, how should you think about which to lock?

Capacity, briefly

Capacity is the cost of ensuring enough generation is committed to be available when the system hits its peak. In ComEd territory that obligation runs through PJM; in Ameren territory it runs through MISO. Your account's share of the capacity cost is driven by your capacity tag, the Peak Load Contribution (PLC) that reflects how much you were drawing during the regional system peaks that set the tag. A wholesale capacity auction produces a clearing price, but that price is a wholesale input, not a rate that lands directly on your bill; how much of it you actually pay depends on your tag and how your contract treats capacity. The connection between the auction and your bill is explained in how PJM capacity prices affect Illinois business bills.

The key property of capacity for a buyer: your exposure is tied to a tag that is set periodically from your own peak behavior. If your tag is stable and predictable, a supplier can more comfortably fix capacity into a flat rate. If your load is peaky or changing, capacity is harder to forecast, which affects how a supplier prices it.

Transmission, briefly

Transmission is the cost of moving power across the high-voltage network to your utility's system. It is recovered through mechanisms set at the regional-grid level and can change as those charges are updated. Transmission cost also relates to peak demand, but through a different measurement and a different set of rules than capacity, which is why the two components do not move in lockstep.

The key property of transmission for a buyer: it is driven by grid-level charges that update on their own schedule and can shift independent of your day-to-day operations. Depending on the period and the region, a supplier may view transmission as either the calmer or the riskier of the two components, and will price it accordingly.

Why a contract fixes one and passes the other through

Suppliers are in the business of pricing risk. When they fix a component into your flat rate, they are agreeing to absorb whatever that component does over the term, and they build a premium into the price to cover that risk. When they pass a component through, they hand the variability back to you and skip that premium.

So the pattern of "fix capacity, pass transmission through" or "fix transmission, pass capacity through" is not arbitrary. It reflects the supplier's judgment about which component is cheaper to carry for your specific load and the current market. A component that is volatile or hard to hedge for your account tends to get passed through; a component the supplier can hedge cleanly tends to get fixed. Different suppliers can reach different conclusions, which is exactly why two offers for the same account can be structured differently.

This is the same logic that runs through the broader fixed-versus-index decision, applied at the level of individual supply components rather than the whole price.

How to think about which to fix

There is no universally correct answer, but there is a correct method. Work through these questions:

• Which component is larger for your account? The component that represents more of your supply cost deserves more attention when deciding whether to lock it. Fixing a small component while leaving a large one to float may not buy you much certainty.
• How predictable is your exposure to each? If your capacity tag is stable, the case for paying a premium to fix capacity is weaker, because your exposure was already fairly predictable. If your tag swings, fixing capacity buys more real certainty. The guides on what a capacity tag is and managing it help you judge this.
• What is the premium? Fixing a component costs something. Compare the fixed and pass-through versions of the same component, when a supplier will quote both, to see what certainty is actually costing you. Certainty is worth paying for only up to the point where the premium exceeds the risk you are offloading.
• What is your tolerance for a budget surprise? A business that cannot absorb an unexpected mid-term increase should lean toward fixing the components most capable of moving. A business with more headroom may rationally accept pass-through on a volatile component to avoid the premium.

Comparing offers without being misled

The trap is comparing a headline rate that fixes everything against a lower headline rate that quietly passes capacity or transmission through. Those are not the same product, and the lower number is not necessarily the cheaper one once the passed-through components move. Before comparing rates, write down for each offer exactly which components are fixed and which float, then compare on that shared basis. This is the discipline behind comparing offers apples to apples and reading the pass-through language that governs what can change mid-contract.

A useful habit: treat "fixed" as a claim to verify, not a label to trust. A genuinely fixed offer names its components and fixes them; a partially fixed offer looks cheaper precisely because it has handed some risk back to you. Only after you know what each offer fixes can you decide which structure fits your load and your appetite for risk. For the wider procurement context, the commercial electricity overview and a structured commercial utility bill review tie the component decision back to the whole bill.

Sources

• PJM Interconnection
• MISO
• Illinois Commerce Commission

This guide explains how capacity and transmission are structured in an offer so you can compare fixed and pass-through terms fairly. It does not promise any particular savings; verify current market terms and the specific contract language before signing.