Understanding the Impact of Capacity Tags on Your Electric Bill

If you haven't heard of a capacity tag, you're probably not alone. If you're a consumer in New York, New England, the Mid-Atlantic, or Texas, however, capacity tags can have significant impact on how much you pay for electricity. Each summer, consumers in these regions are assigned a capacity tag that can influence up to 25% of their electric bills for the entire next year.

A capacity tag is a portion of an electric bill based solely on a customer’s power consumption during the single hour of the previous year when the entire system’s kilowatt demand was at its highest. Although it may seem strange that such a significant component of your electric bill is determined by your consumption in a single hour, your rate is based on the utility’s highest supply cost in the following manner.

For the one hour of the year when demand is highest, the grid operator must buy generation from some of the most inefficient and expensive power plants in order to satisfy increased demand. Consequently, when utilities and retailers purchase capacity from the grid operators to meet higher consumer demand, they, in turn, face extremely high costs. The utilities then pass on high charges to their customers by “tagging” each end user with the amount they contributed to the peak demand. Once determined, this peak demand usage, or capacity tag, is fixed for the next year; and it can have substantial impact a consumer’s electric bills.

If you understand that your electricity usage during just one hour in the summer could have a significant impact on the price you pay for electricity the entire bill next year, and that lowering your usage during this hour of peak demand could substantially lower your electric costs for the following twelve months, would you lower your electric consumption during that one hour? If they answer to that question is yes, how do you know when demand is at its highest?

For just this purpose, we developed the Peak Power Index. Our index has correctly predicted all 49 peak days between 2009 and 2016, with few false predictions. What this means is that we can help you maximize your savings and minimize your inconvenience. To sign up for an email alert on high demand days, just email demandresponse@jouleassets.com; we will be happy to send to your inbox alerts for when you should lower your energy usage. Those signed up for this free service will, on average, receive 5 alerts per year.