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

Thesis: 4CP is a transmission cost allocation that ties a commercial or industrial (C&I) customer’s next‑year transmission charge to its share of the four highest 15‑minute demand intervals in the June‑September summer window. By understanding how those intervals are selected and by using demand‑side tools—load shifting, ERCOT demand‑response programs, and predictive analytics—Texas businesses can lower their 4CP exposure and improve overall profitability.

Understanding the 4CP Allocation Methodology

How ERCOT Identifies the Four Summer Peaks

ERCOT’s transmission tariff is built on the concept of coincident peak demand. For each summer (June 1 through Sept 30), ERCOT examines the 15‑minute interval demand data for every transmission‑service point (TSP) on the grid. It then selects the four intervals with the highest system‑wide demand that also meet a minimum load factor of 0.9. Those intervals become the four coincident peaks (4CP) for that year. The intervals are published in the ERCOT Transmission Planning Report and are used to set the Transmission Service Charge (TSC) for the following calendar year.

How Your Site’s Share Is Calculated

Your site’s 4CP contribution is a proportion of the total 4CP demand at the node where your Transmission Distribution Service Provider (TDSP) connects you. The formula is:

4CP Share = (Your 15‑min kW during each of the 4 peaks) / (Total 15‑min kW at the node for that interval)

The four shares are summed and multiplied by the annual transmission rate (cents/kWh) set by the Public Utility Commission of Texas (PUCT). The result is a fixed dollar amount that appears on your next‑year bill as a coincident‑peak transmission charge.

Because the charge is based on actual usage during those exact intervals, even a modest 5 kW shift can translate into a few hundred dollars of savings for a typical 500 kW facility.

Why 4CP Matters for Your Bottom Line

Impact on Transmission Tariffs

The 4CP component can represent 15‑30 % of a C&I customer’s total transmission bill, depending on load shape and geographic location. For a 1 MW facility in the Dallas‑Fort Worth market, the 4CP charge can be $12‑$18 /kW‑yr, or roughly $12,000‑$18,000 annually. When multiplied across 8,000+ UPG business customers, the aggregate exposure exceeds $100 M.

Interaction with Fixed‑Rate vs Block & Index Contracts

Fixed‑rate contracts lock in the energy price but leave the transmission component, including 4CP, variable. Block and index contracts often embed a transmission‑cost pass‑through clause that references the ERCOT TSC, so any reduction in 4CP directly improves the net contract price. Understanding 4CP therefore informs contract selection; a customer with strong demand‑response capability can negotiate a higher‑fixed‑rate block contract, knowing the transmission risk is mitigated.

Strategies to Reduce 4CP Charges

Load Shifting and Peak‑Clipping

The simplest lever is to move discretionary processes—batch production, HVAC pre‑cooling, or water‑heater charging—to off‑peak hours. A 30‑minute shift out of a 4CP interval can cut the site’s share by up to 10 % for that interval. When combined with a modest demand‑reduction (e.g., 5‑10 kW), the annual 4CP bill can drop by 5‑12 %, which aligns with UPG’s average client savings of up to 27 % on total spend.

Enrolling in ERCOT Demand‑Response Programs

ERCOT operates several ancillary‑service markets, including Regulation Service (RS) and Responsive Reserve Service (RRS), that reward participants for reducing load during high‑price events. By pre‑qualifying for these programs, a facility can receive a per‑MWh payment that often exceeds the marginal cost of curtailing a few kilowatts. UPG’s Energy Health Check includes a TDSP delivery‑charge audit that identifies eligibility for these programs and quantifies the net benefit.

Using Predictive Analytics and UPG’s Energy Health Check

Accurate forecasting of the 4CP intervals is critical. ERCOT publishes a Day‑Ahead Market (DAM) LMP forecast, but the actual 4CP windows are only known after the fact. UPG leverages machine‑learning models that ingest weather forecasts, historical load patterns, and real‑time market data to predict the likely 4CP windows weeks in advance. Clients who act on these predictions can schedule load‑shifting events with confidence, reducing the risk of missed opportunities.

Targeted Curtailment vs Operational Pain

Curtailment—temporarily turning off non‑essential equipment—delivers the biggest per‑kilowatt savings but can disrupt production. The key is to identify low‑cost curtailment assets: lighting, non‑critical compressors, or pre‑cooled storage. A disciplined approach limits curtailment to no more than 15 % of total operating time, preserving product quality while still achieving a 10‑15 % reduction in 4CP exposure.

When Chasing 4CP Isn’t Worth It

High Base Load and Low Flexibility

Facilities with a constant base load above 80 % of their peak (e.g., data centers, continuous‑process plants) have limited ability to shift or shave demand. In such cases, the cost of implementing advanced controls or enrolling in demand‑response can exceed the expected 4CP savings. A simple cost‑benefit test—projected annual 4CP reduction × $/kW‑yr versus the capital and operational expense of the control system—should be run before committing resources.

Cost‑Benefit Thresholds

UPG’s internal benchmark suggests that a minimum $5,000 annual net saving justifies a demand‑side investment. For a 500 kW plant, this translates to a required 4CP reduction of roughly 2 kW‑yr, or a 0.4 % drop in peak demand during the four intervals. If the required reduction is higher, the business should explore alternative cost‑control levers such as renegotiating supply contracts or optimizing energy procurement.

Bottom line

4CP is a transparent, usage‑based transmission charge that can erode a Texas C&I customer’s profitability if left unmanaged. By identifying the four summer peak intervals, measuring your site’s share, and applying a mix of load‑shifting, demand‑response participation, and predictive analytics, you can reduce that share by double‑digit percentages. However, the effort must be weighed against operational constraints; when flexibility is low, the return on investment may not justify the pain. A free Energy Health Check from United Power Group can quantify the exact 4CP exposure and map the most cost‑effective mitigation path.