Peak Load Management Primer

As a consumer of electricity from the grid, you pay for both the actual energy you consume (the kilowatt hours) and the amount of energy that needs to be available to serve your account based on your peak load(kW demand).  This peak kW, or peak load contribution / capacity tag / cap obligation (various names depending on market), can comprise up to 50% of your supply bill and more than 30% of your total electricity bill (supply + delivery).  Through conscious management of your load, or Peak Load Management (PLM), you can clip these peaks and significantly reduce your electricity costs, both in the current period (delivery) and during the next capacity period (supply).  Read on to learn how your peak load contribution is determined, why you should care, how to fully capture the value of PLM, and how you can start actively managing your peak load.

How is my account’s peak load contribution calculated?

Think of consumption (kWh) like a car’s odometer, tracking the total amount of miles driven, and demand (kW) is like the speedometer, tracking the highest speed you’ve traveled at a particular point in time.  This highest speed you’ve traveled, your peak kW demand, affects both the delivery and supply costs you pay.  For supply costs in several deregulated territories, your peak load contribution is determined as follows:
NYISO – Your peak load contribution (PLC), or installed capacity tag (ICAP tag), is determined by your usage during the single highest peak hour from the previous year. The peak hour is the hour during which the usage was the highest across the entire NYISO grid (not just your zone or utility).  Your ICAP tag is effective each May 1 to April 30.
PJM – Your PLC tag is based on your peak demand usage during PJM’s five Coincident Peak Hours during the previous June 1 through September 30 period.  PLCs are effective each June 1 to May 31.
ISO-NE – Your peak load contribution (ICAP tag), is determined by your usage during the single highest peak hour from the previous year. The peak hour is the hour during which the usage was the highest across the entire ISO-NE grid (not just your zone or utility).  Your ICAP tag is effective each June 1 to May 31.

Why should I care about peak load management?

Supply/ESCO Rates: The higher your ICAP tag, the more capacity you need to purchase, and the higher your $/kWh price (all else equal) because the grid has to be prepared to meet your peak demand at any time. This is similar to a mall parking lot. It needs to be big enough for the busiest day of the year (i.e. built for maximum capacity), even though it is not used to full capacity most of the time.  Your monthly payments are determined by both the actual energy you consume (the kilowatt hours) and the amount of energy that needs to be available to serve your account based on your peak load kW demand.  As described above, your PLC/ICAP tag sticks with you for a full year period, regardless of your actual monthly demand moving forward (until the ICAP tag is reset the following year).
Delivery/LDC Rates: For most utility territories, C&I customers (generally accounts with a peak kW >300) are billed both kWh and kW demand charges (as opposed to residential which is just based on kWh consumed).  The delivery demand charge you’re assessed each month is based on the peak kW you register during that billing period, even if it’s just for a 30 minute interval.  In some territories, this rate varies seasonally (higher in summer, lower in winter), varies based on the time the demand is registered (on-peak vs. off-peak hours), and can be subject to ratchets.  A ratchet demand schedule generally bills you for your demand that month, or some percentage of the peak demand for prior months.  For example, if your account registers 1000 kW demand this month and is subject to a 75% ratchet, then next month you pay the greater of that month’s demand or 750kW (75% of 1000 kW), even if your actual demand that month was only 550 kW (i.e. below the 750kW ratchet).  This would continue for a rolling 12 month period based on 75% of the max peak kW of the prior 12 months.

Isn’t this the same as demand response?

Peak Load Management is similar to demand response as both pertain to curtailing energy demand at a given time. However, demand response is a program in which one must respond to the utilities’ requests when demand is too high and there is not enough energy to meet the grid’s peak. The steps that a customer takes once notified by the utility are normally pre-determined by the DR provider/facility engineers, and the customer is paid for reducing kW during an event. There are cost penalties if one does not respond during a demand response event since the utility is relying on you to perform. Peak Load Management, on the other hand, is an internal decision to cut monthly demand charges and decrease your ICAP tag. There are no direct penalties to failing to reduce your peak demand (besides having a higher ICAP tag and in turn paying more for your electricity supply).

Technologies and Operational Strategies Used for Peak Load Management

Peak load management strategies range from low cost operational (pre-heating/cooling to avoid peak hours) to capital intensive projects like battery storage, and much in-between.  The right technology/strategy for you will depend on your utility territory (because of rate structures), use type (e.g. commercial office vs. manufacturing facility), and budget, among other considerations.
Battery Storage – Energy storage systems (ESS) help regulate load flow by charging while the grid is powering base load and the cost of electricity is low. This is typically at night when there is lower demand for electricity vs. daytime. The battery “is then discharged to provide additional power during periods of increased load, while costs for using electricity are increased. It also effectively shifts the impact of the load on the grid, minimizing the generation capacity required.”  When evaluating battery system pro formas, make sure all potential impacts are considered: rate structure (e.g. standby rates), supply contract (fixed vs. index), demand response revenue, and more.
Thermal (Ice) Storage – Similar to battery storage, thermal storage technologies make ice overnight to be stored and then deployed during the day for cooling, shifting all or part of a building’s cooling needs to cheaper off-peak hours. It is designed for the average load, it runs at night, and then uses the ice stored during the daytime to meet the cooling load in the building. It is typically unknown to tenants and reduces operating costs.peak load management graph
On site generation – Generating your own electricity through solar, hydro, fuel cells, etc. will allow you to reduce what you take from the grid, thereby lowering your peak demand. The on-site installation of distributed energy resources (DER) can help you lower your peak demand and possibly be incentivized by the utility during curtailment events. Click the link below to learn about the new rate revamp for DERs in New York that will accurately reflect the values, services and other benefits provided by Distributed Energy Resources to the grid.
Motor Control / Variable Frequency Drives (VFDs) – Fixed speed motor driven applications, such as escalators, can benefit from a motor controller. The controller will adjust the torque output in order to meet the load’s exact requirement. This will guarantee that the output of the motors are in constant equilibrium with its demand and avoid consuming too much energy which is especially useful during peak grid hours. What exactly does a VFD do?

  • “It adjusts the speed of an HVAC fan or pump motor, based on demand, to save energy and prolong motor and mechanical component life”
  • “Without a VFD, an HVAC fan or pump motor is either 100% ‘on’ or 100% ‘off’ ”
  • “A VFD eliminates the initial power surge and mechanical shock of switching the motor from ‘off’ to ‘on’ ”
  • “A VFD conserves energy when an HVAC control system senses that a fan or pump motor can meet heating or cooling needs by running at less than 100% power”

How Can EnergyWatch help you capture the full value of PLM?

Monitoring and Alerts: EnergyWatch can help you with peak load management by monitoring the grid’s consumption and weather in real-time and predicting when peak load hours are likely to occur through our predictive analytics platform Watchwire. We alert you with day-ahead and day-of emails and text messages, which will give you enough time to take action and reduce your demand.
Energy Procurement Strategies: When managing an RFP for your electricity supply, there are a few different steps we can take to ensure you capture the full advantage of peak load reductions.

  1. Pass through capacity, rather than hedging for the contract term. When you hedge beyond the capacity period (e.g. beyond April in NY), and the supplier is absorbing the risk of capacity tag and price fluctuations, then you won’t be able to realize the reduced capacity payments costs when you have reduced your capacity tag until a new contract is signed.  So if you’ve signed a 36 month fully fixed contract, you’re locking your capacity tag at its current level for the 36 month period.
  2. Negotiate capacity adjustment clauses in the supply contract. If you’re actively reducing peak demand, but want to hedge capacity for a period longer than 12 months, then negotiate that suppliers will adjust the capacity tag when new tags are released.
  3. If you’re reducing peak load through load shifting strategies such as battery or ice storage, pass through energy costs as well in order to take advantage of the difference between on-peak and off-peak hourly pricing. If you’re contracted under a fully fixed rate, then the only advantage is the peak demand savings, and you’re not realizing the value of the arbitrage between on- and off-peak LMPs (which has averaged $.013/kWh in NYC Zone J over the past 12 months).

Measurement & Verification: Through Watchwire, EnergyWatch can measure and verify your peak load reducing capital improvements and operational strategies. EnergyWatch will:

  • track all the invoice and metering information real-time to uncover any inconsistencies
  • act as a neutral third party
  • Comply with guidelines outlined in the International Performance Measurement and Verification Protocol (IPMVP), the national measurement and verification standard in the United States and many other countries
  • Provide oversight from an AEE Certified Measurement & Verification Professional.

Peak Load Management Saves Money and Reduces Greenhouse Gas Emissions

Peak Load Management should be a strategy adopted by all C&I facilities, regardless of budget.  PLM does not requireexpensive capital upgrades and installations such as battery storage and on-site generation, since meaningful results can be achieved with low cost/no cost strategies.  When you add gas to the fire by way of capital improvements, PLM can save hundreds of thousands of dollars annually, while reducing GHG emissions by shifting load overnight (baseload nuclear and wind power) and avoiding the dispatch of the dirtiest generation during peak hours (e.g. oil peakers).
Reach out to EnergyWatch today to learn how PLM can be implemented for your facilities and how EnergyWatch can track, measure, and verify your performance.
This article was originally published on the EnergyWatch website.


  • Abate Energy Group. Intelligent Motor Energy Controllers. Accessed 2017 June 5.
  • Consulting- Specifying Engineer. Implementing Energy Storage for Peak-Load Shifting. Accessed 2017 June 2.
  • Electric Ideas Clearinghouse. Peak Load Management. Accessed 2017 June 9.
  • Gibson, David. Senior Technical Advisor- SAIC, an Ameren Illinois ActOnEnergy Partner. Variable Frequency Drives (VFDs): Energy Efficiency Opportunities Accessed 2017 June 9.
  • Kelly-Detwiler, Peter. Forbes. Ice Storage: A Cost-Efficient Way To Cool Commercial Buildings While Optimizing the Power Grid. Accessed 2017 June 9.
  • NYC Citywide Administrative Services. Energy Management, Peak Load Management. Accessed 2017 June 5.

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