Capacity Charges in New York

By Perry Wilson


Capacity charges are used to pay generators for projected electricity demand during the hottest and coldest days of the year, when electricity demand is at its highest. This ensures reliability of your electricity supply. It’s like buying back up energy that will be ready to use whenever needed. If that reserve isn’t available, there won’t be enough electricity to serve New York customers when they need it most for cooling and heating, and that can lead to emergencies such as blackouts.

All suppliers, including Energy Service Companies (ESCOs) like ECP&G and local utilities, are required under federal law to pay capacity charges to the New York Independent System Operator (NYISO).


Why did New York need a new capacity zone?

A new capacity zone was implemented this year to encourage investment in power plants within the Lower Hudson Valley and New York City. Under the previous zoning system, suppliers could purchase capacity from power plants located upstate. This was less costly, but it created significant energy congestion issues. Similar to cars on a hectic highway, transmission lines have limits as  to how much energy it can deliver. When too much energy is being transmitted from upstate to downstate, it can overload the transmission lines and impact reliability. Capacity from power plants within the LHV Zone will mitigate congestion challenges and create a more reliable electricity grid. Additionally, the demand for energy upstate is lower than in the LHV zone, causing an imbalance in customer charges. The new system provides better equality in the rates being charged.