Capacity Tags: How a Few Summer Afternoons Set Your Power Rate

Here is the short version: on a handful of hot afternoons this summer, your business will set a number that quietly rides along on your electric bill for the next full year. It is called a capacity tag, and most owners have never heard of it, even though for larger accounts it can be a real slice of the total cost. If you can ease off your power use during the few hours that actually count, you can shrink that tag and bank savings that have nothing to do with the rate per kilowatt-hour you negotiated.

That is the whole idea. The rest of this explains how it works and what to do about it before the worst of the heat arrives.

What a capacity tag actually is

The grid operator has one job it cannot fail at: keep the lights on during the single worst hour of the year, the moment when air conditioners across the region are all running flat out. To do that, it pays power plants to stay available even when they are not running. Someone has to cover that standby cost, and it gets split among customers based on how much each one was pulling from the grid during the system’s peak hours.

Your share is your capacity tag. You may also see it called peak load contribution, a PLC, or an ICAP tag. In PJM, the grid operator that covers all or part of 13 states from Illinois to New Jersey, the tag is built from your demand during the five highest-demand hours of the summer. PJM averages your usage across those five hours and uses that figure to set your capacity charge for the delivery year that begins the following June.

Read that again, because it is the part that catches people: a few summer afternoons in 2026 help decide what you pay from the middle of 2027 through the middle of 2028. Sleep through the hours that matter and you carry a fatter tag for twelve straight months.

Why this matters more in 2026 than it used to

Capacity is not a rounding error anymore. PJM’s 2025/2026 auction cleared at about $269.92 per megawatt-day across most of its footprint, up from roughly $29 the year before. That is nearly nine times the price for the same pool of standby power. The two auctions after it brought no relief. The 2026/2027 delivery year cleared near $329 per megawatt-day, and the 2027/2028 year near $333. Data center growth and a wave of plant retirements have tightened supply, and the cost of holding reserves for peak hours climbed right along with it.

At the same time, the EIA expects residential electricity prices to rise about 5% in 2026, with the sharpest increases along the East Coast, the same corridor where capacity prices spiked hardest. Commercial demand keeps growing too, up a forecast 2.2% this year and faster after that. Put those together and the capacity line becomes one of the few large charges a business can actually move on its own.

How the tag shows up on your bill

For most small commercial accounts, the capacity cost is baked into the supply rate, so you never see it called out. You are still paying it. You just do not see the math. On larger accounts, especially those on a tag-based or pass-through product, capacity often appears as its own line, tied directly to your peak load contribution and the auction price for that year.

This is why two businesses on paper-identical rates can pay noticeably different amounts. The one that ran hard during last summer’s peak hours locked in a bigger tag, and it is paying for that decision long after the heat wave is a memory.

A worked example

Take a mid-size machine shop with a peak load contribution of 400 kilowatts. At a capacity price near $270 per megawatt-day, that tag costs roughly $39,400 over the year, give or take, before the scaling factors PJM layers on top. Now suppose the shop knows when the peak hours are coming and pulls its demand down to about 320 kilowatts during those windows by staging compressors and shifting one production run to the early morning. Its tag drops with it, and the annual capacity cost falls to somewhere near $31,500. That is close to $7,900 saved, on the same rate, with the same supplier, for paying attention on maybe five afternoons.

The exact numbers depend on your zone, your load shape, and the reserve factors in your market, so treat this as the shape of the opportunity rather than a quote. The point holds: peak-hour behavior turns into a year-long line item.

What you can do about it

The tactic is called peak shaving, and it is less complicated than it sounds. The first move is simply knowing when the peak hours are likely to hit. They tend to land on the hottest, most humid weekday afternoons, often between 2 and 6 in the afternoon. Several services and some suppliers send peak-day alerts, and a good broker can point you to them.

From there it is about easing demand during those windows. A bakery can run its heaviest oven cycles before noon. A machine shop can stagger when big motors start so they are not all drawing at once. A cold-storage operator can pre-cool earlier in the day and coast through the peak. A property manager can pre-cool common areas and dim non-essential load for a few hours. Businesses with on-site generation or battery storage can lean on it during the alerts. And if your usage is large and flexible, a formal demand response program will pay you to cut load when the grid is stressed, which stacks on top of the tag savings.

Where a broker fits in

Be clear about what a broker can and cannot do here. No one can change the auction price PJM sets. What a broker can do is make sure you understand whether your contract bundles capacity into the rate or passes it through as its own line, because that choice changes how much your peak-shaving effort actually pays off. A broker can also time your procurement around known capacity changes and lock a fixed, longer-term supply rate so that the parts of your bill you can control are nailed down while you work on the part you can influence. That is the spirit of our Blend and Extend approach: secure certainty where it is available, and stop leaving the rest to chance.

The bottom line

Capacity tags are the quiet charge almost nobody talks about, and in 2026 they cost far more than they did just a couple of years ago. A few hot afternoons this summer will set a number you live with through the next delivery year. You cannot move the auction price, but you can move your demand during the hours that build your tag, and you can make sure your supply contract is structured so that effort counts.

A free rate analysis is the simplest way to see where you stand. We compare offers across more than 26 suppliers, show you whether capacity is bundled or passed through in your market, and tell you honestly if you are already in a good spot. There is no cost and no obligation to switch.

Sources: PJM Interconnection capacity auction results, PJM Inside Lines (2025); U.S. Energy Information Administration, Short-Term Energy Outlook (June 2026).