In addition to the wholesale cost of energy, other items such as capacity combine to make the total cost of a customer’s electric bill. A portion of a customer’s capacity payment is determined by what is referred to as a Capacity Tag (can also be called peak load contribution (PLC), Installed Capacity (ICAP) or peak monthly demand depending on the customers location). A capacity tag is set for a customer by using their peak demand during a specific peak day/hour/timeframe.
Each ISO calculates and records this differently per their requirements. In New York and New England (NYISO & ISO-NE) markets, an end-user’s cap tag is determined by their usage during the peak hour from the previous year. The peak hour is the hour during which the usage was the highest across the ISO. As an example, last year (2017) for NYISO, this was recorded on July 19 from 5-6 pm. In PJM, the cap tag is set a bit differently as it is determined by a customer’s usage during the total of five coincident peak hours in which the usage was the highest across the RTO.
Regardless of region, the tags aren’t finalized until early the following year because although historically the peaks happen in July or August, there is a chance that the peak could happen at another time during the year. The utility starts updating the tags in their system around the April or May timeframe. The time period this rate is set for runs May 1-April 30 in NYISO and June 1-May 31 in ISO-NE and PJM.
Once the new tags are active, the customer will continue to carry the capacity costs the entire year. This can be a significant part of the overall supply cost. Furthermore, when the cap tags are updated, any previously quoted energy pricing will be impacted as this charge will have changed in the system.
Similar to being able to reduce the cost of your overall electricity bill by reducing consumption, there are actions that a customer can take to reduce capacity costs as well. Since capacity is based on consumption during these peak hours, if a customer is able to reduce demand during this timeframe, this can provide significant cost reductions. Contact your PMC Account Manager to help with a strategy to help manage your capacity tag.