ERCOT 4CP: four intervals that set a year of transmission charges

The mechanism

ERCOT identifies the single 15-minute interval of highest total system demand in each of the four summer months. For each eligible account, its own demand during those four specific intervals is recorded. The average of those four figures becomes the account's transmission demand for the following calendar year.

The consequence is unusual and worth stating precisely: an account's transmission cost for an entire year is determined by its behaviour during one hour in aggregate, spread across four afternoons it cannot identify in advance.

Eligibility, the exact intervals and the applicable charges must be confirmed for the specific account. The method applies to certain large customers rather than to every commercial account, and the details are set by the applicable tariff and protocol.

Why this creates so much leverage

Consider what the arithmetic implies. An account that reduces its demand by 200 kW during those four intervals reduces its transmission demand by 200 kW for the following twelve months. The effort required is four afternoons of curtailment; the benefit runs for a year.

No other intervention in commercial energy has this ratio. It is also entirely a delivery-side matter, which means no supplier is involved and no supply contract is affected.

The forecasting problem

The difficulty is that the peak interval is only known afterwards. Acting requires predicting which afternoons are likely to contain the monthly system peak, and then curtailing on those days.

In practice this is done by monitoring ERCOT system conditions and forecasts during summer afternoons and issuing curtailment calls on days with a high probability of setting the peak. Because the peak cannot be known in advance, this necessarily means curtailing on more days than strictly required, and the programme's value is the avoided transmission charge less the operational cost of those extra curtailments.

Several vendors and consultants provide 4CP forecasting as a service. The quality of the forecast is what determines whether the programme is worth running for a given account.

Who this applies to

Not every Texas commercial account. The method applies to certain large customers, and an account below the applicable threshold is billed transmission on a different basis entirely.

The first question for any Texas commercial account is therefore whether 4CP applies to it at all. Running a curtailment programme for an account that is not billed on this basis is pure operational cost with no return, and it is a mistake that does get made.

What it does not affect

4CP is a transmission cost allocation mechanism. It does not change the supply rate, it is not affected by which retail provider serves the account, and it is not negotiable.

It also sits alongside, rather than replacing, the ordinary demand charge on the account's TDU delivery charges. Those are set by the account's own peak rather than by coincidence with the system peak, so an account can be managing both simultaneously with different targets.

Common questions

What is 4CP in ERCOT?

The Four Coincident Peak method of allocating transmission cost. An eligible account’s demand during the single highest 15-minute system demand interval in each of June, July, August and September is averaged, and that average sets transmission charges for the following calendar year.

How much can 4CP management save?

It depends entirely on the account’s demand, the applicable transmission rate and how much load it can curtail. Because the benefit is a reduction in the following year’s transmission demand, it is calculable for a specific account once eligibility and curtailable load are known.

Does switching retail providers affect 4CP?

No. 4CP is a transmission cost allocation mechanism applied to the account. It is unaffected by which retail electric provider supplies the account.

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