Your supplier quote is not invented — it is built on top of a wholesale price set by a grid operator running a real-time auction. When that price moves, your next renewal moves with it. Understanding the mechanism tells you why your rate changed and what you can do about it.
The grid operators for our markets are ERCOT (Texas), PJM (Ohio, Pennsylvania, New Jersey, and DC), and ISO-NE (Massachusetts). Each runs a different market structure, and those differences show up in how supplier quotes are built and when default utility rates spike.
Grid operators — also called independent system operators (ISOs) or regional transmission organizations (RTOs) — are the air-traffic controllers of the power grid. Their core job is keeping electricity supply equal to demand at every moment across thousands of miles of wires. They do this by running continuous auctions in which generators submit offers to supply electricity and the operator dispatches the cheapest generators first until the balance is met.
ERCOT covers most of Texas. PJM covers Ohio, Pennsylvania, New Jersey, Washington DC, and twelve other states. ISO-NE covers Massachusetts and the rest of New England. Each operator sets the market rules and publishes the real-time prices that suppliers use to build retail contracts.
Wholesale energy prices clear through a mechanism called locational marginal pricing (LMP). Every five minutes, the grid operator runs an auction. Generators submit bids saying, in effect, "I can produce this many megawatts for this price per megawatt-hour." The operator stacks those bids from cheapest to most expensive and accepts just enough to cover current demand. The price of the last — most expensive — generator needed to meet demand sets the clearing price for everyone.
The word "locational" matters because transmission lines have physical limits. If a cheap generator in western Ohio cannot move power to eastern Ohio because the lines are congested, the operator must call on a more expensive local generator instead. The resulting price at the congested node is higher. Two businesses in the same state can face meaningfully different underlying wholesale costs depending on where the grid bottlenecks on any given afternoon.
Suppliers hedge against this by buying forward contracts — agreements to purchase power at a fixed price for a future period. When a supplier quotes your business a fixed rate, they are essentially passing their forward-hedged cost plus a margin to you as a retail price.
Running the grid only on real-time energy sales creates a problem: generators that run only during the highest-demand hours may not earn enough to stay in business year-round, but the grid needs them to exist when a heat wave hits. PJM and ISO-NE solve this with capacity markets — annual auctions held years in advance where generators are paid a separate fee just for committing to be available during future peak periods, whether or not they actually run.
PJM runs its capacity auction roughly three years ahead of the delivery year. ISO-NE runs a similar Forward Capacity Auction. When those auctions clear at elevated prices — because demand growth outpaces new supply, or because older plants retire — that cost flows forward into the supply market. Default utility rates like Pennsylvania’s Price-to-Compare and Massachusetts’s Basic Service incorporate capacity costs, so businesses on those default rates feel the impact directly. Competitive supplier quotes do too, because suppliers must purchase capacity to back the contracts they sell.
ERCOT takes a different approach entirely. Texas has no capacity market. Generators earn revenue only when they run and sell energy. The theory is that high prices during scarcity events — ERCOT lets real-time prices rise sharply when reserves are thin — provide the incentive generators need to invest and stay online. In practice, this means Texas supplier quotes are built almost entirely on the energy forward curve rather than a separate capacity component.
| Grid operator | States covered | Capacity market? | Price model |
|---|---|---|---|
| ERCOT | Texas | No | Energy-only; scarcity pricing |
| PJM | OH, PA, NJ, DC + 12 others | Yes — annual auction ~3 yrs ahead | Energy + capacity + ancillaries |
| ISO-NE | Massachusetts + New England | Yes — Forward Capacity Auction | Energy + capacity + ancillaries |
Competitive suppliers price fixed-rate contracts by hedging their cost on the forward market at the moment you request a quote. Forward prices move every business day, driven by weather forecasts, natural gas prices, new capacity auction results, and transmission announcements. A quote valid today reflects today’s forward strip. The same contract priced three weeks later reflects that week’s strip — which may differ significantly.
This is why shopping during a market dip can matter more than negotiating margin. A supplier willing to shave 0.1¢/kWh off their margin helps less than timing a renewal when the forward market pulls back. Conversely, waiting too long past a contract expiration forces a renewal at whatever price the market is at on that specific day — with no leverage.
Start shopping 90 to 120 days before your contract ends. That window gives you time to watch the forward market move and pick a better entry point rather than scrambling at expiration. Late shoppers accept the market price the day they call; early shoppers can wait for a dip.
In PJM and ISO-NE markets, capacity cost is allocated partly based on your contribution to peak demand during specific measurement hours. Businesses that reduce load during those coincident peak windows — typically the highest-demand summer afternoons — can lower the capacity tag assigned to their account. This connects directly to demand charge management: see our demand charges guide for the mechanics of controlling your peak.
An all-in fixed contract bundles energy, capacity, and ancillary costs into one locked rate. You pay that rate regardless of what markets do during the term. A pass-through contract charges you the actual wholesale cost components as they settle each month, often with a fixed supplier adder on top. Pass-through contracts are cheaper when markets fall — and more expensive when a capacity auction clears high or a cold snap drives up energy prices. Choosing between them means deciding how much market exposure your business can absorb.
A wholesale electricity market is a coordinated exchange where power generators sell electricity to utilities and suppliers in large blocks, seconds to years in advance. Grid operators — ERCOT in Texas, PJM across Ohio, Pennsylvania, New Jersey, and DC, and ISO-NE in Massachusetts — run these markets and set the rules. The prices that clear those markets form the cost base that suppliers build retail quotes on top of.
Locational marginal pricing (LMP) is the real-time wholesale price of electricity at a specific point on the grid. LMP equals the cost of serving one more megawatt-hour at that location, accounting for fuel costs, transmission congestion, and grid losses. A business in a congested part of the grid can see a higher LMP — and ultimately a higher supply cost — than one a few miles away with a clear transmission path.
A capacity market is a forward auction where suppliers of electricity generation are paid to guarantee they will be available to run during future peak periods — typically three years out. PJM and ISO-NE run annual capacity auctions. When those auctions clear at high prices, default utility rates (Basic Service in Massachusetts, Price-to-Compare in Pennsylvania) and competitive supplier quotes both rise because generators pass that cost forward. ERCOT has no capacity market; Texas generators earn only from energy sales. Capacity charges typically appear as a separate line in pass-through supplier contracts.
Competitive suppliers price fixed-rate contracts off the forward energy and capacity markets at the moment you request a quote. Forward prices shift daily based on weather outlooks, fuel prices, transmission conditions, and auction results. A quote you received in January reflects market conditions from January. The same quote in March reflects whatever the forward strip was priced at then — which may be higher or lower. Locking early is not always better; watching the market before renewing can reduce cost.
An all-in (fixed) contract bundles energy, capacity, transmission, and ancillary charges into a single cents-per-kWh rate. That rate will not change during the contract term regardless of what markets do. A pass-through (index or variable) contract charges you the actual wholesale cost components as they change each month, sometimes with a fixed adder. Pass-through contracts are cheaper when markets fall and more expensive when auctions clear high or energy prices spike. The right choice depends on your risk tolerance and your view of the forward market at signing.
Our commercial team pulls live supplier quotes against today’s forward market and compares them to your current contract — free, with no obligation. Most businesses find out within 48 hours whether they locked at a good time or have room to improve on renewal.
Get a free rate comparisonWhy some states let businesses shop for supply while others don’t.
Fixed vs. variable, term length, and the clauses that matter at renewal.
How your peak demand drives a separate line on your bill — and how to cut it.