What Is 4CP and How Can Texas Businesses Reduce 4CP Charges?

What Is 4CP and Why It Matters for Texas Businesses

The four coincident peak (4CP) charge is one of the most significant transmission costs for commercial and industrial customers in ERCOT. Unlike standard delivery charges, which are based on average usage, 4CP allocates transmission costs based on a site’s highest 15-minute demand during four designated peak periods each summer—typically June through September. These four 15-minute intervals are determined by ERCOT’s system-wide peak demand across the grid, and every customer’s share of the total cost is calculated based on their proportional contribution during those moments. This means that even a single high-demand event during one of the four peak intervals can drive up a customer’s annual 4CP charge for the following year.

For Texas businesses, especially those with high load factor variability, 4CP can represent 10%–25% of total electricity spend. A typical manufacturing facility with a 1,000 kW peak demand could face $20,000–$30,000 in annual 4CP charges depending on grid conditions and internal load patterns. The charge is not just a cost—it’s a performance metric tied directly to how well a site manages demand during the most stressed periods of the grid. Understanding and managing this charge is essential for long-term energy cost control.

How 4CP Is Calculated and When It’s Determined

ERCOT identifies the four 15-minute intervals each year with the highest system-wide demand during the June–September period. These are the only intervals that count toward 4CP. Each customer’s share of the 4CP charge is calculated by dividing their peak 15-minute demand during any of those four intervals by the total system-wide peak demand during the same intervals. The resulting percentage is then multiplied by the total 4CP pool, which is set annually by the PUCT and distributed across all eligible customers.

For example, if a facility recorded a 1,200 kW demand during one of the four peak intervals and the system-wide peak was 100,000 MW, the facility’s share would be 0.0012%. If the total 4CP pool for the year is $120 million, that facility would owe $144,000 in 4CP charges for the next year. The charge is applied annually, so the same event can impact costs for multiple years unless mitigated.

Why Predicting 4CP Is Critical for Cost Control

Because 4CP is based on future-year charges, the window for intervention is narrow. The 4CP intervals are finalized in early January, and the resulting charges are applied to customer bills starting in February. This means that businesses must predict and manage demand during the summer months—often months before the actual peak occurs. Without forecasting, a single unmanaged spike in demand during a high-load day can result in a multi-year cost burden.

UPG’s internal data shows that 68% of clients with high 4CP exposure were able to reduce their annual 4CP charges by 15%–27% through demand forecasting and load-shifting strategies. These results are driven by accurate modeling of load behavior during high-stress grid conditions, often using historical load data, weather patterns, and real-time grid conditions from ERCOT’s LMP (Locational Marginal Price) signals.

Strategies to Reduce 4CP Charges: Forecasting, Curtailment, and Load Management

The most effective way to reduce 4CP is through proactive load management. This begins with accurate forecasting. UPG uses proprietary models to simulate high-demand scenarios and identify when a site’s load is likely to spike during a 4CP interval. These forecasts are updated weekly during the summer and adjusted based on real-time grid conditions.

Once a high-risk interval is identified, businesses can implement curtailment strategies. For example, a manufacturing plant might delay non-critical production cycles, shut down non-essential HVAC systems, or shift high-load processes to off-peak hours. These actions reduce the site’s peak demand during critical 15-minute windows, directly lowering its 4CP share. For a site with 200 kW of flexible load, even a 10% reduction during a peak interval can save $5,000–$8,000 in annual 4CP costs.

Another approach is to use on-site generation or demand response programs. Some customers with solar or battery storage systems can reduce grid draw during peak intervals. Others participate in PUCT-approved demand response programs, where they earn payments for reducing load during system stress events—effectively offsetting 4CP charges.

When Chasing 4CP Is Not Worth the Operational Pain

While reducing 4CP is a valid goal, not every business should pursue aggressive curtailment. For facilities with continuous processes—such as data centers, refrigerated warehouses, or chemical plants—shutting down or delaying operations can lead to quality issues, safety risks, or production delays. In these cases, the operational cost of avoiding 4CP can exceed the financial benefit.

UPG’s analysis shows that for sites with load factor above 85% and minimal load variability, the cost of implementing curtailment programs often outweighs the savings. These customers are better served by fixed-rate contracts with predictable delivery charges, which smooth out cost volatility. In such cases, focusing on reducing overall energy spend through procurement optimization—rather than chasing 4CP—delivers better ROI.

The Role of Energy Procurement and Contract Design

A well-structured electricity contract can help mitigate 4CP exposure. UPG’s fixed-rate and block & index contracts are designed to lock in wholesale prices and stabilize delivery charges, including 4CP. By avoiding variable-rate contracts that pass through real-time LMP volatility, customers can reduce uncertainty and better budget for 4CP.

Additionally, UPG offers a free Energy Health Check, which includes a detailed audit of TDSP delivery charges, 4CP exposure, and contract terms. This service has helped clients identify overcharges and optimize their load profiles, resulting in average annual savings of $3,200 per customer.

Bottom Line

4CP is a critical cost factor for Texas commercial and industrial customers, but it is not inevitable. By understanding how 4CP is calculated, leveraging accurate forecasting, and implementing targeted load management strategies, businesses can reduce their 4CP charges by up to 27%. However, these efforts must be balanced against operational constraints. For sites with continuous processes or high load factor, the cost of curtailment may outweigh the savings. The most effective approach is a tailored strategy combining procurement optimization, contract design, and targeted demand management—ensuring long-term cost control without operational disruption.