Electricity Hedging Strategies for Ohio Businesses

The short answer

Hedging means deciding how much of your future electricity cost to lock in, and when. For most Ohio businesses a single fixed-price contract is the hedge. Larger buyers can do more: layer purchases over time, fix a block of baseload while floating the rest, or manage capacity separately by cutting load during PJM peaks. Each tool trades some price certainty for flexibility or the chance of a lower average cost.

For writing down who decides and how much risk is acceptable, see energy risk policy.

The retail hedging toolkit

Tool	How it works	Hedges against	Leaves you exposed to
Full fixed price	Lock 100% of expected usage at one price for 12–36 months	Energy and capacity price moves	Usage changes outside bandwidth; missing a later price drop
Layered (tranche) buying	Fix portions (e.g., 25% at a time) at several dates	Buying everything at a peak	Some market exposure until the last layer
Block and index	Fix a MW block for baseload; buy the rest at index	Most price risk on steady load	Price spikes on the floating portion
Heat-rate or gas-linked products	Price tied to natural gas × a fixed heat rate	Power price moves not driven by gas	Gas price moves
Index with caps (where offered)	Market price with a ceiling	Extreme spikes	Premium for the cap
Capacity pass-through + peak management	Pay capacity at cost; lower your tag by curtailing at peaks	High capacity costs (about $120/kW-year in 2026/27)	Missing a peak hour

Matching tools to situations

• Small businesses: a fixed price with capacity included is almost always right; budget certainty matters more than trimming a fraction of a cent.
• Mid-size (around 700,000 kWh a year and up): consider fixed pricing with capacity pass-through if you can respond to PJM peak alerts, or a two-layer purchase.
• Large or multi-site: layered purchasing across 12–36 months, block-and-index for steady baseload, and an explicit capacity strategy.

Capacity is now a known cost — use that

PJM's auctions have already set capacity prices through May 2029: $329.17/MW-day (2026/27), $333.44 (2027/28) and $325.00 (2028/29). There's little to hedge on the price itself; the lever is your tag. Every kW you shave from the summer peak hours that set next year's tag is worth roughly $120 a year at these prices.

What can go wrong

• Over-hedging. Locking 100% of volume, then closing a site, triggers true-ups or termination charges.
• Under-documented decisions. A layered strategy without written triggers turns into guessing.
• Counterparty risk. A supplier default leaves you on the utility default price; check supplier strength for long terms.
• Ignoring bandwidth. A great hedge price with narrow bandwidth can cost more than a slightly higher price with flexibility.

FAQ

What is a layered electricity hedging strategy?

Buying portions of your future usage at several points in time so your average price isn't set on a single day.

Do small businesses need hedging?

A fixed-price contract is a hedge. Most small businesses don't need anything more complex.

Should capacity be included in a fixed price?

Include it if you want budget certainty or can't respond to peak alerts; pass it through if you can reliably cut load during PJM's summer peak hours.