What “Fixed” Really Means in Today’s Evolving Energy Market when Seeking Budget Certainty

December 4, 2025 by Kelsey Peusch

The Evolution of “Fixed Pricing” in Energy Procurement

When you sign an energy contract, the word “fixed” implies certainty—a shield against market volatility. Historically, a true “fixed price” energy contract meant that all components—energy, capacity, transmission, and all minor ancillary costs —were locked in for the full term. No surprises, no adjustments.

In today’s volatile, fast-moving energy market, that simple model has largely disappeared. Most suppliers now offer what is more accurately called a Fixed Adjustable product. While the name sounds contradictory, it does reflect the reality of how capacity and transmission are priced and is the modern standard that balances both budget certainty with market efficiency.

Let’s Break Down the Three Key Components:

1. Energy (The Commodity)

Status: Fully Fixed
The Breakdown: This is the cost of the power (kWh) consumed. This is the most straightforward component in that whatever percentage of your usage you choose to hedge it is locked in for the life of the contract. For the sake of simplicity let’s assume we are taking a 100% hedge to cover all the electricity consumed.

2. Capacity (Ensuring Grid Reliability)

Status: Fixed based on known values, estimates adjusted when actuals are published
The Breakdown: Capacity charges ensure that there is always enough power on the grid to meet peak demand. Suppliers calculate this cost based on two annually-determined factors:
- Your Obligation: Determined by your facility’s peak demand (KW) during the five highest peak demand days of the previous summer.
- The Market Price: Set by the independent system operator (ISO) via annual auctions.

The Catch: If you sign a short-term contract (e.g. 12 mos), your capacity charges can be fully fixed because both the obligation and market price are likely known for the contract period. However, for contracts that extend beyond the current published period (PJM is currently May 31, 2027), suppliers must estimate future costs. They then reserve the right to adjust based on the actual figures once they are published. That’s the “adjustable” part.

3. Transmission (Moving the Power)

Status: Fixed based on known values, estimates adjusted when actuals are published
The Breakdown: Transmission costs cover the maintenance and operation of the high-voltage lines that move power across the region. The market price is typically published twice a year (PJM is January and June).
The Catch: Similar to capacity, suppliers use the most recent published data to fix pricing. For contract terms extending beyond the next publication date, they may apply a credit or charge once the new, actual values are known.

✅ Why “Fixed Adjustable” is the Recommended Strategy

A Fixed Adjustable contract essentially locks in capacity and transmission based on the best currently known values.

If those values change in the future, you may see a charge or a credit—depending on the difference (the delta) between the initial estimate and the actual market price.

For example: If your organization implements energy efficiency projects or participates in a demand response program, you could lower your usage during the next summer’s peak periods. This could result in a credit for lowering your capacity obligation, which is a key benefit of the “adjustable” structure!

This approach strikes the right balance: it provides budget certainty while still allowing your organization to benefit from future cost efficiencies. It avoids the high premium associated with forcing a supplier to absorb all future risk.

🚧 What Are the Alternatives?

Option	Description	Budget Predictability	Recommendation
Fixed Premium	Few suppliers offer this. It attempts to fully fix all costs, but often includes high premiums and still has pass-through risks under Change of Law clauses.	High, but costly.	Not recommended unless you are highly risk-averse and comfortable overpaying for certainty.
Pass-through	Capacity and transmission are left fully variable, fluctuating with the market. Often promoted by brokers to make the upfront commodity price look lower.	Low	Sacrifices budget predictability and is highly risky for organizations with strict financial planning requirements.

🎯 Bottom Line

The configuration of your capacity and transmission charges is ultimately your choice, but in most cases, we recommend the All-in Fixed Standard Product—the modern “Fixed Adjustable” contract.

It gives you the best mix of cost control, transparency, and flexibility without overpaying for certainty you may not need.

Ready to Structure Your Next Energy Contract?

We can help you navigate the complexities of capacity and transmission charges.

Would you like to discuss your organization’s specific energy goals and risk tolerance to determine the best contract fit?