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

Thesis

4CP transmission charges are a hidden cost driver for many Texas C&I electricity bills, but they are not immutable. By understanding how ERCOT defines the four summer peaks, measuring a site’s share of those intervals, and applying targeted load‑shifting or demand‑response tactics, a business can lower its next‑year transmission allocation and improve overall cost certainty.

Answer in a nutshell

4CP is ERCOT’s method of allocating a portion of the transmission system’s fixed‑cost recovery to the customers who consume the most power during the four highest‑demand 15‑minute intervals of the June‑September summer window. Those intervals are identified after the season ends, and each customer’s share of the total system load during those intervals determines the 4CP charge that appears on the next year’s bill. Reducing participation—either by moving load out of the peaks or by smoothing demand—directly reduces the charge.

Understanding 4CP

How ERCOT identifies the four peaks

ERCOT runs a nodal market where every 15‑minute interval has a locational marginal price (LMP). For each summer (June 1 through Sept 30), ERCOT scans the LMP data and selects the four 15‑minute intervals with the highest system‑wide demand. These are called the "four coincident peaks" (4CP). The intervals are not fixed calendar dates; they vary year‑to‑year based on weather, generation outages, and load patterns.

How the charge is calculated

• System‑wide 4CP pool – ERCOT aggregates the total megawatt‑hours (MWh) consumed by all customers during the four peak intervals.
• Customer share – Your site’s MWh in those intervals is divided by the system‑wide total, producing a percentage share.
• Transmission cost allocation – ERCOT multiplies that share by the total transmission cost recovery amount earmarked for 4CP (typically a few cents per kWh, expressed as $/MWh on the wholesale component of the bill). The result is added to the next year’s transmission charge line item.
• Impact on the retail bill – The 4CP charge appears on the retail invoice as a separate $/MWh component, on top of the TDSP delivery charge and any demand‑charge structure.

Because the charge is based on a percentage of a fixed pool, even a modest reduction in your peak‑interval usage can produce a disproportionate savings. For example, a 5% reduction in 4CP MWh can lower the transmission allocation by roughly 5% of the total pool, which often translates to $0.02‑$0.04/kWh saved on the retail side.

Strategies to reduce 4CP

Load shifting and demand response

The most direct way to cut 4CP is to move discretionary load out of the identified peak intervals. Typical tactics include:

• Pre‑cooling or pre‑heating – Run HVAC systems a few hours before the expected peak (often early afternoon) to lower the load during the 4CP windows.
• Process rescheduling – Shift non‑essential manufacturing steps, water‑treatment pumps, or refrigeration cycles to off‑peak hours.
• Automated demand‑response (DR) platforms – Enroll in ERCOT‑approved DR programs that can shed load on short notice for a predetermined payment. Participation can also earn ancillary service credits, offsetting the 4CP cost.

A well‑tuned DR strategy can shave 10‑20% of a site’s 4CP MWh, which for a typical 2 MW‑average C&I customer can equal $15,000‑$30,000 in annual savings.

Predictive analytics and UPG’s Energy Health Check

Accurately forecasting which intervals will become 4CP peaks is critical. UPG’s free Energy Health Check includes a 4CP audit that leverages ERCOT’s historical LMP data, weather forecasts, and your own meter data to model the next summer’s peak windows. Our 25+ years of Texas market expertise allow us to:

• Identify the most likely 4CP intervals for your service territory.
• Quantify the dollar impact of each megawatt‑hour shifted.
• Recommend a mix of fixed‑rate contracts, block purchases, and index structures that lock in lower transmission exposure.

Clients who acted on our Health Check recommendations have reduced their 4CP allocation by up to 20%, contributing to the average $3.2 M saved annually across our 8,000+ business customers.

Contractual levers

While 4CP is a transmission‑cost allocation, the underlying energy contract can influence exposure:

• Fixed‑rate contracts – Locking the energy price does not change the 4CP calculation, but it provides cost certainty for the energy component, making the transmission portion more visible.
• Block and index structures – By purchasing a portion of load at a fixed block price, you can align consumption with lower‑cost intervals, indirectly reducing 4CP participation.
• Supplier panel negotiation – UPG’s 30+‑supplier panel can source contracts that include built‑in demand‑response clauses, helping you meet 4CP reduction targets without separate DR enrollment.

When chasing 4CP isn’t worth it

Not every site should invest heavily in 4CP mitigation. Consider the following signals:

• Low peak‑to‑average ratio – If your load factor is already high (above 80%), there may be limited wiggle room.
• Operational constraints – Manufacturing processes that cannot be shifted without costly downtime may outweigh the transmission savings.
• Cost‑benefit threshold – If the projected reduction translates to less than $0.01/kWh saved, the administrative and technology costs may erode the benefit.
• Regulatory changes – Texas Senate Bill 7 and the Electricity Facts Label are increasing transparency, but they have not altered the 4CP methodology. However, future PUCT rulemaking could adjust the pool size, affecting the ROI of mitigation.

In such cases, focusing on broader energy‑cost optimization—such as negotiating better wholesale rates or improving overall efficiency—may deliver a higher return.

Bottom line

4CP charges are a predictable, calculable portion of Texas transmission costs that stem from a customer’s share of the four highest‑demand 15‑minute intervals each summer. By using load‑shifting, demand‑response, predictive analytics, and strategic contract structures, businesses can materially reduce that share and improve cost certainty. UPG’s free Energy Health Check provides the data‑driven roadmap needed to decide whether the operational effort is justified. For most C&I customers, a targeted 5‑10% reduction in 4CP usage yields meaningful dollar savings without compromising production.