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Get a Free QuoteThe Four Coincident Peak (4CP) methodology determines how Texas allocates billions in annual transmission costs. Large customers have been gaming the system, shifting costs to residential ratepayers. The PUCT is proposing reforms that will reshape solar and battery economics for every Texas electricity customer. Here is what you need to know.
$14.9B
TX Transmission Investment
49%
Residential Cost Share
$66.76
Per kW Transmission Rate
+50%
Investment Increase
Active Rulemaking: The PUCT published draft 4CP reform recommendations on March 16, 2026. Public comments are due April 13, 2026. Final rules are expected by December 31, 2026. All information below reflects the draft proposals — final rules may differ based on stakeholder feedback. The current 4CP methodology remains in effect until new rules are formally adopted.
The 4CP methodology is how ERCOT decides who pays for the billions of dollars Texas spends on transmission infrastructure — the high-voltage lines and substations that move electricity from power plants to your home or business.
Your electricity bill has two main components: energy charges (paying for the electricity you use) and transmission charges (paying for the wires that deliver it). Transmission charges represent roughly 25-35% of a typical Texas electricity bill. The 4CP methodology determines your share of those transmission costs based on how much electricity you used during the four most stressful moments for the grid each summer.
Think of it like highway tolls based on rush hour usage. If you drive during the four busiest traffic hours of the summer, you pay more toward highway maintenance. If you avoid those hours, you pay less. The 4CP methodology applies the same logic to electricity transmission.
Each summer (June through September), ERCOT identifies the single 15-minute interval with the highest systemwide demand in each month. These four intervals are the "Four Coincident Peaks" — the moments when the entire ERCOT grid was under maximum stress.
Your electricity consumption during each of those four peak intervals is recorded by your interval meter. If you used 500 kW during the July peak and 400 kW during the August peak, those are your coincident peak contributions for those months.
Your average usage across the four peaks determines your share of total ERCOT transmission costs. If your average 4CP contribution is 450 kW and the total ERCOT 4CP is 80,000 MW, you are responsible for 450/80,000,000 of the total transmission cost pool.
Your TDU (Oncor, CenterPoint, AEP Texas, etc.) bills you based on your 4CP share multiplied by the transmission rate. At $66.76/kW, a 450 kW average 4CP contribution would cost approximately $30,042 annually in transmission charges — billed monthly over the following year.
"Coincident" means your usage is measured at the same moment as the systemwide peak — not your personal peak. You might use 10 kW at 2 AM on a Tuesday, but that does not count because the grid was not stressed at that moment. Only your usage during the four specific 15-minute intervals when the entire ERCOT grid hit its highest demand matters for transmission cost allocation.
The 4CP system created a loophole: large customers who could predict and avoid the four summer peaks shifted their transmission costs onto everyone else — especially residential customers.
~33%
Residential share of ERCOT load
Residential customers consume roughly one-third of total ERCOT electricity.
~49%
Residential share of transmission costs (CenterPoint)
In CenterPoint territory, residential customers pay nearly half of all transmission costs.
$66.76/kW
Transmission rate (2025)
ERCOT-wide average transmission cost per kW of coincident peak demand.
$14.9 Billion
ERCOT transmission investment (2025-2027)
Planned investment up 50% from the prior three-year period.
Large commercial and industrial customers — data centers, manufacturing plants, big-box retailers — employ sophisticated 4CP avoidance strategies. They hire consultants who use weather models and grid data to predict which 15-minute interval in each summer month will be the system peak. When alerts go out, these customers:
Some large customers reduce their 4CP contribution by 60-80%, saving hundreds of thousands of dollars annually in transmission charges. Those costs do not disappear — they get redistributed to customers who cannot game the system.
Residential customers cannot practically game 4CP. You cannot predict which specific 15-minute interval in July will be the system peak, and even if you could, you probably would not turn off your air conditioning during a 105-degree afternoon to save on a transmission charge you do not directly see on your bill.
The result: residential customers in CenterPoint territory consume about 33% of total electricity but pay approximately 49% of transmission costs. This disparity is driven directly by large customer 4CP avoidance. Every kW of demand that a data center avoids during a peak interval is a kW of transmission cost that gets shifted to residential ratepayers.
With $14.9 billion in new ERCOT transmission investment coming online between 2025 and 2027 — a 50% increase over the prior three years — the total transmission cost pool is growing rapidly. The cost-shifting problem is getting worse, not better.
The PUCT published draft recommendations on March 16, 2026. Public comments are due April 13, 2026. Here are the four primary proposals under consideration.
Instead of using only 4 summer peaks, use 12 monthly peaks (one per month, all year). This makes it harder to game because you would need to reduce consumption during 12 unpredictable intervals instead of 4. It also distributes costs more equitably by including winter peaks, which residential customers contribute to heavily.
Impact: Reduces gaming effectiveness by 67%. Makes battery-based peak avoidance significantly harder.
Establish a floor on transmission charges for large commercial and industrial customers based on their average or maximum demand, regardless of their 4CP reduction. This prevents large customers from gaming their way to near-zero transmission costs while maintaining high average consumption.
Impact: Shifts costs back toward large customers. Less impact on residential solar/battery economics.
Combine coincident peak-based allocation with energy-based allocation. For example, 50% of transmission costs allocated by coincident peak and 50% by total energy consumed. This creates a more balanced approach that accounts for both peak contribution and overall grid usage.
Impact: Moderate impact on all customer classes. Reduces but does not eliminate gaming incentive.
Set transmission charges based on the highest single coincident peak contribution in the prior 12 months, rather than an average of 4. This "ratchet" means one slip — one peak interval where you fail to curtail — sets your transmission cost for the entire year.
Impact: Strongly discourages gaming. Makes battery-based peak avoidance very high-stakes.
Industry observers expect the PUCT to adopt a blended approach — likely expanding from 4CP to 12CP combined with some form of minimum demand charge for large customers. A full elimination of coincident peak methodology is considered unlikely because peak-based allocation does serve a legitimate purpose in encouraging load reduction during grid stress events. The question is how to preserve that incentive while reducing the gaming opportunity.
The 4CP reform is moving through the formal PUCT rulemaking process.
PUCT publishes draft 4CP reform recommendations with four proposed methodologies. Public comment period opens.
Public comment period closes. Utilities, consumer advocates, large customers, solar/battery industry, and municipalities submit formal comments.
PUCT staff reviews comments, conducts cost impact modeling, and prepares revised proposals. May schedule additional stakeholder workshops.
PUCT targets final rule adoption by December 31, 2026. Commission vote on selected methodology.
Implementation begins. New transmission cost allocation methodology takes effect. Transition period possible for complex changes.
How does 4CP reform affect the financial case for solar panels and battery storage in Texas? Here is a scenario-by-scenario analysis.
Solar panels naturally reduce your 4CP contribution because peak demand occurs during sunny afternoon hours when solar production is highest. A 10 kW system can reduce your 4CP exposure by 30-60%, lowering transmission charges.
If 4CP expands to 12CP, solar still helps during summer months but provides no benefit during winter evening peaks (December-February). Net 4CP reduction drops from 30-60% to roughly 20-35%.
Verdict: Moderate negative impact — solar still helps, but less effectively.
Solar + battery is the ultimate 4CP reduction tool. Battery stores solar during the day and discharges during peak intervals. With smart controls, a well-sized battery can reduce your 4CP contribution to near zero during all 4 summer peaks.
Expansion to 12CP or a demand ratchet makes battery-based peak avoidance harder. You would need to predict and respond to 12 intervals instead of 4, and winter peaks may occur when solar production is low and battery state-of-charge is reduced.
Verdict: Negative impact — battery ROI for transmission avoidance decreases.
Large commercial customers actively "game" 4CP by curtailing load during predicted peak intervals, sometimes using batteries, generators, or even shutting down operations. Some companies employ 4CP consultants who alert them before peaks.
Minimum demand charges and expanded peaks directly target this behavior. Commercial customers who currently achieve 60-80% 4CP reduction may see their strategies become much less effective, increasing their transmission costs significantly.
Verdict: Significant negative impact on current gaming strategies.
Under 4CP, batteries that discharge during the four summer peaks provide direct, measurable transmission cost savings. This is one of the strongest economic justifications for commercial battery storage in ERCOT.
If the methodology shifts away from 4CP, the transmission cost savings from battery peak-shaving decrease. However, batteries retain their value for backup power, energy arbitrage, demand charge management (separate from 4CP), and potential DRRS grid service revenue.
Verdict: Mixed — transmission value decreases but other value streams remain.
4CP transmission savings are only one component of solar and battery value in Texas. Solar panels primarily save money by offsetting energy charges — those savings are entirely unaffected by 4CP reform. Batteries provide backup power during outages (critical in ERCOT), potential DRRS grid service revenue, demand charge management for commercial customers, and energy arbitrage. Even if 4CP reform reduces the transmission cost benefit, the overall investment case for solar and batteries in Texas remains strong for most customers.
Practical guidance for residential homeowners, commercial customers, and solar/battery investors during the 4CP reform transition.
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Everything Texas energy customers ask about 4CP reform and its impact on solar and battery economics.
The Four Coincident Peak (4CP) methodology is how ERCOT allocates approximately $5+ billion in annual transmission costs across all electricity customers. Your transmission charges — which represent roughly 25-35% of your total electricity bill — are determined by your electricity usage during the four highest grid demand moments each summer (one per month, June-September). If you use a lot of electricity during these four peak intervals, you pay a larger share of transmission costs. If you reduce your usage during peaks, you pay less. This creates a strong financial incentive for large customers to reduce consumption during predicted peaks.
The PUCT is reforming 4CP because large commercial and industrial customers have become very effective at "gaming" the system — drastically reducing their usage during the four summer peak intervals while maintaining high consumption the rest of the year. This gaming shifts transmission costs to residential customers who cannot practically reduce their usage during unpredictable 15-minute intervals. In CenterPoint territory, residential customers use about 33% of electricity but pay approximately 49% of transmission costs. The PUCT views this cost-shifting as inequitable and unsustainable, especially with $14.9 billion in new transmission investment coming online between 2025 and 2027.
The PUCT published draft recommendations on March 16, 2026, with a public comment period closing April 13, 2026. The Commission aims to finalize new rules by December 31, 2026. Implementation timing depends on the final methodology — some changes could take effect for the 2027 billing year, while more complex structural changes might require a longer transition period. The current 4CP methodology remains in effect until the new rules are formally adopted and implemented.
Currently, solar panels naturally reduce your 4CP contribution because peak grid demand typically occurs on hot summer afternoons when solar production is highest. If the PUCT expands to 12CP (12 monthly peaks), solar would still help during summer months but would provide no 4CP benefit during winter evening peaks when panels produce minimal energy. The net effect: solar still reduces your transmission costs, but the reduction shrinks from roughly 30-60% under 4CP to an estimated 20-35% under 12CP. Solar retains its primary value — offsetting your energy charges — regardless of transmission methodology changes.
If your primary reason for purchasing a battery is 4CP transmission cost reduction, you should factor in the reform risk. Under the current 4CP system, a well-managed battery can reduce your 4CP contribution to near zero. Under 12CP or a demand ratchet, achieving the same reduction becomes much harder. However, batteries provide multiple value streams beyond 4CP: backup power during grid outages (critical in ERCOT), potential DRRS grid service revenue, demand charge management for commercial customers, and energy cost optimization. Most Texas battery customers cite backup power as their primary motivation, and that value is unaffected by 4CP reform.
The ERCOT-wide average transmission rate is approximately $66.76 per kW of coincident peak demand per year. This rate varies slightly by TDU service territory (Oncor, CenterPoint, AEP Texas, TNMP). The rate is applied to your average 4CP contribution — your average usage across the four summer peak intervals. For a residential customer with a 5 kW average 4CP contribution, the annual transmission cost is approximately $334. For a commercial customer with a 500 kW average 4CP contribution, it is approximately $33,380.
ERCOT has $14.9 billion in planned transmission investment for 2025-2027, which is a 50% increase over the prior three-year period ($9.9 billion for 2022-2024). This investment is driven by rapid load growth from data centers, industrial facilities, and population growth in Texas. These costs are passed through to ratepayers via the transmission rate, which is why the PUCT is simultaneously reforming how those costs are allocated — the total pot of money being divided is growing rapidly, making equitable allocation increasingly important.
Commercial and industrial customers who currently employ 4CP gaming strategies face the most significant impact. Companies that use batteries, generators, or operational curtailment to reduce their 4CP contribution by 60-80% may see much of that benefit eliminated under reformed rules. Minimum demand charges would establish a floor on transmission costs regardless of 4CP reduction. For commercial solar and battery customers, the economic models for demand charge management and transmission cost avoidance will need to be recalculated once final rules are published. NuWatt recommends that commercial customers continue investing in solar and batteries for their energy and demand charge benefits while monitoring the 4CP rulemaking closely.
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Regardless of how the PUCT reforms 4CP, solar panels save money by offsetting your energy charges — and batteries protect your home during ERCOT grid emergencies. Get a personalized quote that models your savings under current and post-reform economics.
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Last updated: April 2026
Sources: PUCT draft recommendations (Mar 2026), ERCOT transmission reports, CenterPoint rate filings, NREL