Let’s explore what a bi-lateral true-up is, why it matters in a fixed-rate contract, and how Comfort Profit Consulting can help ensure your energy strategy works for you, not against you.
Understanding the Components of a Fixed Electricity Contract
In deregulated energy markets like PJM, many businesses sign fixed electricity contracts for predictability and budget control. These contracts typically bundle three cost components:
- Energy (kWh usage)
- Capacity (cost to ensure future supply)
- Transmission (cost to deliver power to your site)
While the total price may be fixed, not all of these components behave the same. Capacity charges, in particular, are recalculated every year based on your business’s Peak Load Contribution (PLC), your facility’s demand during the grid’s five peak hours each summer.
Here’s where the problem lies: If you sign a multi-year contract and manage to reduce your PLC in year two or three, that reduction won’t matter unless your contract includes a bi-lateral capacity true-up clause.
What is a Bi-Lateral Capacity True-Up Clause?
A bi-lateral capacity true-up is a contractual provision that allows the electricity supplier to adjust your capacity charges mid-contract if your PLC decreases. That means if your business successfully implements demand reduction strategies (like peak shaving), you’ll be credited for the reduced capacity costs moving forward.
Without this clause, the supplier will continue charging you the same high capacity rate you locked in at the beginning, even if your actual usage profile has improved. In other words, you’re stuck overpaying.
Why This Clause Matters More Than Ever in PJM
PJM’s most recent capacity auction saw prices jump by more than 800% in some areas for the 2025/2026 delivery year. To address volatility, FERC approved PJM’s proposal to implement a price cap of $325/MW-day and a floor of $175/MW-day for the next two auction cycles (2026/2027 and 2027/2028).
While this provides more predictability, it also locks in elevated costs for years to come. Businesses now face higher baseline costs, making it even more important to reduce PLC and ensure you get credit for doing so. The bi-lateral true-up clause is the only way to guarantee you capture that value inside your fixed-price contract.
Real-World Example: How It Can Cost (or Save) You
Let’s say a business signs a 3-year fixed electricity contract in 2025 at a capacity rate based on a PLC of 1.5 MW. In year two, they implement operational changes and reduce their PLC to 1.0 MW.
- With a bi-lateral true-up clause: The supplier adjusts the rate based on the new PLC, and the business saves ~$50,000 annually.
- Without a true-up clause: The business continues paying for 1.5 MW of capacity, throwing away thousands in avoidable charges.
As PJM capacity costs continue to rise, these savings (or losses) will only grow more significant.
How Comfort Profit Consulting Helps
Comfort Profit Consulting is not just an energy broker, we’re your energy advocate. We work with commercial and industrial customers to:
- Evaluate existing electricity contracts
- Negotiate better supplier agreements with customer-favorable terms
- Ensure bilateral true-up clauses are clearly written and enforceable
- Advise on strategies to reduce PLC and lower future capacity costs
Our deep market expertise helps clients avoid costly oversights and unlock real savings, especially in today’s high-stakes market environment.
Contact Us Today For Expert Energy Advice
If your electricity contract doesn’t include a bi-lateral capacity true-up clause, you may be paying far more than you should. And with capacity costs in PJM on the rise, that mistake could cost your business a fortune over the next several years.
At Comfort Profit Consulting, we help clients review, renegotiate, and optimize their electricity supply agreements to make sure every dollar counts. Reach out today to schedule a free contract review, we’ll help you ensure your energy strategy is ready for the new market reality.
Comfort Profit Consulting
Dan Comfort
(570) 336-0197
comfortprofit@gmail.com
