What is 4CP and how can Texas businesses reduce 4CP charges?

Thesis

Four‑coincident‑peak (4CP) transmission charges are a predictable, high‑impact expense for Texas commercial and industrial (C&I) electricity users. They are derived from a site’s contribution to the four highest 15‑minute intervals on the ERCOT grid during the summer months, and they are applied to the next year’s transmission bill. By mastering how those peaks are selected, leveraging demand‑forecasting services, and deploying focused load‑curtailment strategies, a business can lower its 4CP allocation—often by 5‑15%—without sacrificing reliability. When the cost of curtailment outweighs the savings, however, chasing 4CP becomes a net loss.

How ERCOT Calculates 4CP Charges

The Summer Peak Window

ERCOT defines the summer season for 4CP as June 1 through September 30. Within this window the system records 15‑minute locational marginal price (LMP) intervals for every node. The four intervals with the highest system‑wide LMPs become the coincident peaks.

Determining a Site’s Share

Each TDSP (Oncor, CenterPoint, AEP Texas, TNMP) allocates the 4CP charge to its customers based on the proportion of the site’s demand during those four intervals relative to the total demand on the node. The formula is:

4CP Allocation = (Site kW during peak interval ÷ Total node kW during same interval) × 4CP rate

The rate is set annually by the Public Utility Commission of Texas (PUCT) and reflects the cost of maintaining the 4CP transmission assets, typically ranging from $0.20 to $0.35 per kWh of peak demand.

Impact on the Next‑Year Bill

Because the allocation is based on the previous summer’s usage, the 4CP charge appears on the next year’s transmission invoice. This lag creates a planning horizon where businesses can adjust load patterns before the next allocation period begins.

Predicting the Four Peaks

Market Signals to Watch

• ERCOT LMP forecasts: ERCOT publishes day‑ahead and week‑ahead LMPs. The highest projected LMPs often align with high‑temperature days and low wind output.
• Weather trends: The National Weather Service’s 7‑day heat outlook and the Energy Information Administration’s (EIA) summer temperature outlook are reliable leading indicators.
• Ancillary service scarcity: When ERCOT signals tight reserve margins, LMPs spike, increasing the likelihood of a coincident peak.

UPG’s Prediction Service

United Power Group (UPG) offers a free Energy Health Check that includes a 4CP exposure analysis. Our 25‑year Texas market experience lets us model a site’s likely share of the four peaks with a 95% confidence interval. Clients typically see a $150,000‑$300,000 reduction in annual transmission spend when they act on our recommendations.

Curtailment Strategies That Work

1. Load Shifting to Off‑Peak Hours

Moving discretionary processes—such as HVAC pre‑cooling, batch manufacturing, or data‑center cooling—to early morning or late evening reduces the probability of being on‑line during the four peaks.

2. Automated Demand Response (ADR)

Deploying ADR controllers that receive ERCOT’s real‑time LMP feed can trigger a 5‑10% load reduction within seconds of a peak forecast. UPG has integrated ADR with over 8,000 business customers, delivering an average 4CP reduction of 7%.

3. Targeted Equipment Scheduling

Identify high‑kW equipment that can tolerate brief shutdowns (e.g., compressors, chillers). A 15‑minute curtailment during a peak interval can shave up to 0.5 MW of demand, translating into roughly $30,000 in 4CP savings per event.

4. Power Factor Improvement

While 4CP is demand‑based, a higher power factor reduces overall kW draw for the same kWh consumption, indirectly lowering the site’s share of the peak.

5. Contractual Hedging

Fixed‑rate or block contracts that include a demand‑cap clause can provide a ceiling on 4CP exposure. UPG’s supplier panel of 30+ top‑tier REPs offers contracts that lock in a demand component, often delivering up to a 27% spend reduction.

When Not to Chase 4CP

High Operational Cost

If curtailment forces a production line to shut down, the lost revenue can exceed the transmission savings. Conduct a cost‑benefit analysis where the marginal cost of lost output > $0.35/kWh (the typical 4CP rate).

Limited Flexibility

Facilities with continuous processes—e.g., petrochemical refineries—cannot afford even a 5‑minute interruption without safety or quality penalties. In such cases, focus on power‑factor correction and contract hedging instead.

Low Peak Share

Sites that already contribute less than 0.5% of the node’s demand during the four peaks see minimal dollar impact. For these customers, the effort of ADR or load‑shifting yields diminishing returns.

Practical Steps for Texas Leaders

1. Run the Free Energy Health Check – UPG reviews your last three years of bills, audits TDSP delivery charges, and quantifies 4CP exposure.
2. Map the Four Peaks – Use ERCOT’s historical LMP data to identify the exact dates and times that created your last 4CP allocation.
3. Develop a Peak‑Response Playbook – Define who authorizes curtailment, which loads are eligible, and the communication protocol.
4. Invest in ADR Technology – Integrate a real‑time LMP feed with building management systems; UPG can recommend vetted vendors.
5. Negotiate a Demand‑Cap Contract – Leverage our 30+ supplier panel to lock in a demand ceiling that aligns with your 4CP target.

Bottom line

4CP charges are a predictable, quantifiable transmission cost that can be managed through data‑driven forecasting, targeted curtailment, and strategic contracting. For most Texas C&I customers, a disciplined approach yields a 5‑15% reduction in the 4CP line item, translating into $150,000‑$300,000 of annual savings. When the operational burden outweighs the financial benefit, focus on power‑factor improvements and contract hedging instead of aggressive load‑shaving.