Guest Blog: Capacity Charges Drive Up the Cost of Electricity for Customers Across New England

Published July 05, 2017

Guest Blog: Capacity Charges Drive Up the Cost of Electricity for Customers Across New England

DATE PUBLISHED: July 05, 2017
Category: Blog Article

Controlling Peak Usage Through Variety of Measures Can Help Mitigate the Impact

By Liam Sullivan, Vice President of Marketing & Communications at PowerOptions

Customers across New England are seeing an increase in their electricity costs, even as the electric commodity price has remained relatively stable. This is due in large part to an increase in capacity costs. Capacity charges were about 10-15% of the electricity supply portion of the bill for the 2016-17 power year (June 1 – May 31) but have increased to as much as 25-30% of electric supply costs for the 2017-18 power year and similar for 2018-19.

Generation capacity charges are costs imposed on all customers by the electric grid system operator, ISO-NE (the Independent System Operator of New England), to ensure that the region has enough power to serve the maximum customer demand, typically on hot summer afternoons.

Customer capacity charges are used to compensate electricity generators for the need to remain ready and available with adequate generation. This is especially important today, as a number of power plants in New England have recently retired or are on the verge of doing so. This compensation allows marginal power plants—ones that may not necessarily be economical in the competitive market—to remain open until new generation or other resources are available to meet power requirements at the maximum demand.

ISO-NE divides New England into three power load zones: Northeastern Massachusetts (NEMA); Southeastern Massachusetts (SEMA); and Rest of Pool (ROP), which includes Western Massachusetts, Rhode Island, Connecticut and Northern New England. Capacity costs are determined through an auction, where generators bid to serve the load in each zone for a specific 12-month time period.

The graph below shows the impact of capacity prices for each zone over time.

Capacity charges are imposed on all customers, but the amount charged varies based on each individual customer’s usage, measured by ISO-NE on the hour of peak demand. That measurement is called an ICAP Tag or capacity tag, and it indicates the amount of generation ISO-NE needs to allocate for that specific customer. As we enter the hot summer months, customers who can manage their usage on potential peak hours can mitigate capacity charges by lowering their capacity tag.

So how do customers go about lowering a capacity tag?

On-site solar generation is a great way to manage usage during peak hours. Since solar panels will be generating at high levels during hot summer afternoons, it should be a seamless operation. Some customers utilize other forms of on-site generation or have advanced demand management systems to allow them to effectively control power usage. But even without sophisticated demand management equipment, there are some simple steps that you can take to help lower usage at those peak times.

By taking some action, your initial benefit will be a lower electric bill, and the future benefit will be a reduced ICAP Tag, which will decrease your electricity costs into the future. Those actions can include:

  • Turning off lights in unused spaces;
  • Raising the thermostat a couple of degrees, or cycling the compressors and just leaving the fan on;
  • Shutting off computers and other office equipment that is not currently in use; and
  • Closing the blinds and any exterior or interior doors that would affect the loss of cooling.

For more information about various energy efficiency options for businesses and institutions in Massachusetts, check out the Massachusetts Department of Energy Resources.

About PowerOptions

PowerOptions is a nonprofit energy buying consortium that delivers cost savings and predictability to nonprofits and the public sector in New England. Our 500 members benefit from energy supply offerings for electricity, natural gas and solar. An added value, PowerOptions provides members with alerts on potential times of peak demand to help them to manage their capacity tag. Members participating in PowerOptions ICAP Tag Reduction Program can earn rebates for reducing their capacity tag by 10% or more—in 2017, certain members earned rebates of nearly $50,000. Established in 1998, any nonprofit or public institution in Massachusetts, Rhode Island and Connecticut is eligible to participate in this collective purchasing effort. For more information, visit or follow us on Twitter at @PowerOptions.