Understanding Capacity Tags and Their Impact on Ohio Commercial Energy Bills

In the complex, deregulated energy market of Ohio, your electricity bill is more than just a tally of how much power you used. It is a collection of charges, each representing a different part of the grid’s operations. One of the most significant, yet least understood, of these charges is the Ohio capacity tag. For many commercial and industrial businesses, this "hidden" fee can represent 20% to 30% of their total energy spend.

A capacity tag is not a charge for the energy you use; it is a charge for the energy you might use. It is a "readiness fee" that ensures the regional grid operator, PJM Interconnection, has enough power plants on standby to meet the absolute highest demand of the year. In this guide, we will deconstruct the "DNA" of the capacity tag, explain how it is calculated, and provide a roadmap for slashing your Peak Load Contribution (PLC) to lower your future bills.

The Hidden Charge Driving Up Your Ohio Energy Bill: What is a Capacity Tag?

To understand the capacity tag, you must understand the burden that large users place on the electrical grid. The grid must be built for the "worst-case scenario"—the hottest hour of the year when every AC unit is running at 100%.

The "Reserve Seating" Analogy

Think of the electrical grid like a theater:

• Energy (kWh): This is the price of the ticket you bought for the movie you actually watched.
• Capacity (kW): This is a fee you pay to ensure that a seat is always held for you, even if you never show up. The bigger you are, the more seats the theater must "hold," and the more you are charged.

The ohio capacity tag is essentially the "rent" you pay for your reserved seats on the grid.

Why It Matters to Your Bottom Line

Unlike your energy rate, which you can negotiate with a supplier, the capacity tag is based on your specific usage history. If you have a high capacity tag, you are essentially "taxing" yourself on every kilowatt-hour you buy. This makes it a critical part of any commercial electric bill analysis.

Decoding Your Bill: How PJM's 5 Coincident Peaks (5 CP) Determine Your Capacity Cost

In Ohio, which is part of the PJM market, your capacity tag is calculated through a process known as the 5 Coincident Peaks (5 CP).

How the Calculation Works

1. The Grid Peaks: Each summer (June 1 through September 30), PJM identifies the five one-hour periods when the entire grid reaches its highest demand. These are the 5 CPs.
2. Your Usage: Your utility (AEP, Duke, etc.) looks at exactly how much power your facility was using during those specific five hours.
3. The Average: They average your usage during those five hours to determine your Peak Load Contribution (PLC).
4. The Rate: This PLC number is then multiplied by a "Capacity Price" (determined by PJM auctions) to calculate your monthly capacity charge for the following year.

The Delay Effect

The important thing to realize is that your actions this summer determine your costs for next June through the following May. If you are sloppy with your usage during a few hours in August, you will pay for it for 12 straight months. This is why ohio peak demand charges are so impactful.

Proven Strategies to Slash Your Peak Load Contribution (PLC) and Lower Future Bills

Because the capacity tag is based on such a small number of hours, it is remarkably easy to manage—if you have the right data. This is known as "Peak Shaving."

1. Predictive Peak Alerts

You cannot "guess" when the 5 CPs will occur. You need professional market monitoring.

• The Strategy: Partner with a consultant or use software that provides "Peak Alerts." When the data shows the grid is approaching a historical peak, you receive a notification (via text or email) a few hours in advance.

2. Operational Curtailment

Once you receive an alert, you take action to lower your peak load contribution in Ohio.

• The Action: Shut down non-essential motors, dim the lights, and increase the HVAC set-point by 3-4 degrees for a two-hour window. For a large facility, being "off the grid" for those few hours can save $10,000 to $50,000 the following year.

3. On-Site Generation and Storage

This is the "Automatic" peak shaving strategy.

• The Strategy: Use a battery system or a backup generator to power your facility during the peak hours. Your utility meter sees zero (or very low) demand, effectively "erasing" your capacity tag. As we discuss in our energy storage guide, this is the highest-ROI application for commercial batteries.

4. Behavioral Change

Educate your team on the "cost" of those five hours. Ensuring that a cleaning crew doesn't turn on all the lights during a peak afternoon alert is a zero-cost way to achieve reduce commercial energy costs in ohio.

Take Control: How to Proactively Manage Your Capacity Tag for Maximum Ohio Energy Savings

The final piece of the puzzle is how your energy contract handles these costs.

The "Fixed" vs. "Pass-Through" Decision

• Fixed Capacity: The supplier "guesses" what your capacity cost will be and builds it into your fixed rate.
• Pass-Through Capacity: You pay the actual cost of your capacity tag as a line item on your bill.

The Pro Strategy: If you plan to actively manage your PLC through peak shaving, you must choose a "Pass-Through" contract. If you fix the capacity, and then you work hard to lower your tag, the supplier keeps the savings, not you.

Annual Tag Reviews

Every January, you should receive your new PLC for the upcoming June. Review this number carefully. If it seems incorrectly high, your broker can perform a "Tag Audit" to ensure the utility didn't make a mistake in their 5 CP calculations.

Conclusion

The ohio capacity tag is a hidden driver of energy costs, but it is also one of the most manageable. By understanding the 5 CP calculation, utilizing predictive alerts for peak shaving, and ensuring your energy contract is structured to reward your efficiency, you can significantly lower your peak load contribution in Ohio and gain a permanent competitive advantage. Don't let five hours of usage dictate your budget for 365 days—take control of your capacity today.

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Last Updated: January 2026 | Word Count: ~2,750 words