# How ConEd's Supply Charges Work: A Complete Explainer

> ⚠️ **Disclaimer**: This guide was generated by an LLM (Claude Opus 4.5) based on the tariff JSON plus the model's background knowledge of utility rate structures and NYISO markets. The content looks reasonable but **has not been verified by domain experts**. Please verify any claims before relying on them for business or regulatory purposes.

## Overview

When you pay for electricity in New York, your bill includes two main categories:

1. **Delivery Charges** — Fixed rates for using ConEd's wires (regulated, rarely change)
2. **Supply Charges** — Cost of the actual electricity (variable, changes monthly)

This explainer focuses on **supply charges** and explains:

- How real-time wholesale prices become a single monthly rate
- Why there's a forecast + adjustment structure
- How the averaging and reconciliation math works

---

## The Players

| Entity     | Role                                                                          |
| ---------- | ----------------------------------------------------------------------------- |
| **NYISO**  | Runs the wholesale electricity market for New York State                      |
| **ConEd**  | Buys electricity from NYISO on behalf of customers who haven't chosen an ESCO |
| **NY PSC** | Regulates ConEd; must approve rate changes                                    |
| **You**    | Residential customer paying for electricity                                   |

---

## Part 1: How Wholesale Electricity Pricing Works

### Real-Time Prices at NYISO

NYISO calculates **Locational Marginal Prices (LMPs)** that change every 5 minutes:

```
LMP = Energy Component + Congestion Component + Losses Component
```

- **Energy**: Base cost of generation
- **Congestion**: Premium when transmission is constrained
- **Losses**: Cost of electricity lost in transmission

These prices vary by location (node) and time. A hot summer afternoon in NYC might see prices spike to $500/MWh, while a mild spring night might be $20/MWh.

### Zone-Level Pricing

For retail purposes, NYISO aggregates nodal prices into **zone-level prices**:

| Zone | Area                      | Typical Price Characteristics    |
| ---- | ------------------------- | -------------------------------- |
| H    | Upper Westchester         | Lower, less congested            |
| I    | Lower Westchester/Yonkers | Moderate                         |
| J    | New York City             | Higher, transmission-constrained |

ConEd serves all three zones, so they track prices for each separately.

---

## Part 2: From Real-Time Prices to a Forecasted MSC

### The Challenge

ConEd must set a **single $/kWh rate** for the upcoming month before knowing:

- What the weather will be
- What demand will be
- What generation will be available
- What actual NYISO prices will be

### How ConEd Forecasts

ConEd builds their MSC forecast using:

| Input                     | How It's Used                                  |
| ------------------------- | ---------------------------------------------- |
| **Historical LMPs**       | Same month in prior years as baseline          |
| **Forward market prices** | NYISO forward curves for upcoming period       |
| **Weather forecast**      | Expected heating/cooling demand                |
| **Load forecast**         | Predicted hourly consumption pattern           |
| **Fuel prices**           | Natural gas forwards (drives generation costs) |

### Load-Weighted Averaging (Critical Concept)

The forecasted MSC is **not** a simple average of expected hourly prices. It's a **load-weighted average**:

```
Forecasted MSC = Σ (Expected_LMP_hour × Expected_Load_hour) / Σ Expected_Load_hour
```

**Why load-weighted?**

Consider a simplified example:

| Hour            | Expected LMP | Expected Load | LMP × Load   |
| --------------- | ------------ | ------------- | ------------ |
| 2 AM (off-peak) | $0.03/kWh    | 1,000 MWh     | $30,000      |
| 2 PM (peak)     | $0.15/kWh    | 3,000 MWh     | $450,000     |
| **Total**       |              | **4,000 MWh** | **$480,000** |

```
Simple average: ($0.03 + $0.15) / 2 = $0.09/kWh  ← WRONG

Load-weighted: $480,000 / 4,000 MWh = $0.12/kWh  ← CORRECT
```

The load-weighted average reflects that **more electricity is consumed during expensive peak hours**, so the effective rate is higher than a simple average.

### Zone-Specific Forecasts

ConEd creates separate forecasts for each zone:

| Rate                                 | Zone | Reflects                                |
| ------------------------------------ | ---- | --------------------------------------- |
| `marketSupplyChargeResidentialZoneH` | H    | Forecasted load-weighted LMP for Zone H |
| `marketSupplyChargeResidentialZoneI` | I    | Forecasted load-weighted LMP for Zone I |
| `marketSupplyChargeResidentialZoneJ` | J    | Forecasted load-weighted LMP for Zone J |

---

## Part 3: The Monthly Billing Cycle

### Step 1: MSC Rate is Set (Before Billing Period)

ConEd files the forecasted MSC with the NY PSC. This becomes the rate you'll be billed.

```
January MSC Rate (Zone J): $0.0823/kWh  ← Forecast made in late December
```

---

### Step 2: Real-Time Procurement (During Billing Period)

Throughout January, ConEd buys power at actual NYISO prices:

| Day    | Hour  | Actual LMP (Zone J) | Actual Load | Cost     |
| ------ | ----- | ------------------- | ----------- | -------- |
| Jan 1  | 00:00 | $0.042              | 4,200 MW    | $176,400 |
| Jan 1  | 01:00 | $0.038              | 3,900 MW    | $148,200 |
| ...    | ...   | ...                 | ...         | ...      |
| Jan 31 | 23:00 | $0.067              | 4,800 MW    | $321,600 |

ConEd tracks every 5-minute interval across the entire month.

---

### Step 3: Your Bill Goes Out (End of Billing Period)

Your January bill uses:

| Line Item         | Value        | Based On               |
| ----------------- | ------------ | ---------------------- |
| MSC Rate          | $0.0823/kWh  | Forecast (from Step 1) |
| MSC I Adjustment  | $0.0012/kWh  | True-up from October   |
| MSC II Adjustment | -$0.0008/kWh | True-up from October   |

**You're paying:**

- January supply at a **forecast**
- October supply **corrections**

---

### Step 4: NYISO Settlement (1-2 Months Later)

NYISO doesn't finalize costs immediately:

| Settlement Stage | Timing    | What Happens               |
| ---------------- | --------- | -------------------------- |
| Initial          | T+5 days  | Preliminary pricing posted |
| First true-up    | T+30 days | Corrections for meter data |
| Final            | T+60 days | All adjustments finalized  |

Only after final settlement does ConEd know the **true cost** for January.

---

### Step 5: Calculating the Variance (2-3 Months Later)

Now ConEd can compare forecast vs. reality:

```
Actual Cost = Σ (Actual_LMP × Actual_Load) for all hours in January

Billed Amount = Forecasted_MSC × Total_Actual_Load

Variance = Actual Cost - Billed Amount
```

**Example:**

| Metric                                  | Value          |
| --------------------------------------- | -------------- |
| Total January Load (Zone J residential) | 2,500,000 MWh  |
| Forecasted MSC                          | $0.0823/kWh    |
| Billed to customers                     | $205,750,000   |
| Actual load-weighted LMP                | $0.0847/kWh    |
| Actual procurement cost                 | $211,750,000   |
| **Variance (under-collection)**         | **$6,000,000** |

ConEd under-collected by $6 million. This needs to be recovered.

---

### Step 6: How the Adjustment is Calculated

The variance is converted to a per-kWh adjustment factor:

```
MSC I Adjustment = Variance / Expected Future Load
```

If ConEd expects to sell 2,400,000 MWh in the recovery period:

```
MSC I Adjustment = $6,000,000 / 2,400,000 MWh = $0.0025/kWh
```

This $0.0025/kWh surcharge will appear on bills ~3-4 months after January.

---

### Step 7: Regulatory Filing and Approval

ConEd files the proposed adjustment with the NY PSC:

- Shows actual costs vs. billed amounts
- Proposes adjustment factor
- PSC reviews for accuracy (ConEd shouldn't profit on supply)
- PSC approves (or modifies) the adjustment

---

### Step 8: Adjustments Applied to Future Bills

The approved adjustment appears on customer bills:

```
April 2025 Bill:
├── MSC Rate: $0.0756/kWh      ← Forecast for April
├── MSC I Adjustment: $0.0025/kWh  ← Recovery for January under-collection
└── MSC II Adjustment: $0.0003/kWh ← Capacity/ancillary from January
```

---

## Part 4: MSC I vs. MSC II — What's the Difference?

### MSC I Adjustment (Energy)

Reconciles the **commodity cost** of electricity:

```
MSC I Variance = Σ (Actual_Energy_LMP × Load) - (Forecasted_MSC × Load)
```

- **Zone-specific**: Because NYISO energy prices differ by zone
- **Driven by**: Weather, demand spikes, generation outages, fuel prices

| Zone | Key                              | Why Different                                |
| ---- | -------------------------------- | -------------------------------------------- |
| H    | `mscIResidentialWestchester2252` | Less congestion, different load shape        |
| I    | `mscIResidentialWestchester2252` | Similar to Zone H                            |
| J    | `mscIResidentialNewYork2252`     | NYC transmission constraints = higher prices |

### MSC II Adjustment (Capacity & Ancillaries)

Reconciles **non-energy costs**:

| Cost Type              | What It Is                                                   |
| ---------------------- | ------------------------------------------------------------ |
| **Capacity**           | Payments to generators to be available (even if not running) |
| **Ancillary services** | Frequency regulation, spinning reserves, voltage support     |
| **Working capital**    | Carrying costs for the lag between payment and collection    |
| **NYISO fees**         | Administrative charges from the grid operator                |

```
MSC II Variance = Actual_Capacity_Costs - Forecasted_Capacity_Costs
                + Actual_Ancillary_Costs - Forecasted_Ancillary_Costs
                + Carrying_Costs
```

- **Not zone-specific**: These costs are averaged across ConEd's entire territory
- **More stable**: Capacity costs are set seasonally, less volatile than energy

---

## Part 5: The Complete Timeline

```
                    BILLING        SETTLEMENT      FILING         RECOVERY
                    PERIOD         PERIOD          PERIOD         PERIOD
                    ─────────      ──────────      ────────       ────────
January             February       March           April          May+
─────────────────────────────────────────────────────────────────────────────
│                   │              │               │              │
▼                   ▼              ▼               ▼              ▼
You use power       NYISO          ConEd           PSC reviews    Adjustment
ConEd procures      finalizes      calculates      and approves   appears on
at real-time LMPs   settlement     variance        adjustment     your bill

You're billed at
FORECASTED MSC

Gap created ────────────────────────────────────────────────────► Gap closed
(forecast ≠ actual)                                                via adjustment
```

---

## Part 6: Worked Example

### January Billing Period (Zone J Residential)

**Forecasting (December):**

```
Expected January load shape × Forward LMP curve = $0.0823/kWh forecasted MSC
```

**Reality (January):**

```
Actual hourly data:
- Total load: 2,500,000 MWh
- Load-weighted actual LMP: $0.0847/kWh
- Actual energy cost: $211,750,000
```

**What customers paid:**

```
2,500,000 MWh × $0.0823/kWh = $205,750,000
```

**Variance:**

```
$211,750,000 - $205,750,000 = $6,000,000 under-collection
```

**MSC I Adjustment (applied in April/May):**

```
$6,000,000 / 2,400,000 MWh (expected recovery period load) = $0.0025/kWh
```

**Your April bill includes:**

```
Energy for April:        500 kWh × $0.0756 = $37.80  (April forecast)
MSC I Adjustment:        500 kWh × $0.0025 = $1.25   (January true-up)
MSC II Adjustment:       500 kWh × $0.0003 = $0.15   (January capacity true-up)
                                             ───────
Total Supply Charges:                        $39.20
```

---

## Part 7: Key Takeaways

### Why This Structure Exists

| Reason                     | Explanation                                |
| -------------------------- | ------------------------------------------ |
| **Timing mismatch**        | Bills must go out before costs are known   |
| **Settlement lag**         | NYISO takes ~60 days to finalize           |
| **Regulatory requirement** | Rate changes need PSC approval             |
| **Revenue neutrality**     | ConEd can't profit on supply; must true-up |

### The Math in One Equation

```
What you pay over time = What ConEd paid NYISO

MSC_billed + MSC_I_adjustments + MSC_II_adjustments = Actual_procurement_cost
```

### Load-Weighting Matters

Both the **forecast** and the **adjustment** use load-weighted averages because:

- Electricity consumption isn't uniform throughout the day
- More power is consumed during expensive peak hours
- A simple average would understate true costs

---

## Part 8: What If You Switch to an ESCO?

If you choose an Energy Service Company (ESCO) instead of ConEd's default supply:

- You **don't pay** MSC, MSC I, or MSC II
- You pay the ESCO's rate instead (could be fixed or variable)
- ConEd still handles delivery (you still pay delivery charges)
- The ESCO manages their own procurement and hedging

The `chargeClass: "SUPPLY,CONTRACTED"` rates in the tariff only apply to customers using ConEd as their supplier.

---

## Glossary

| Term                      | Definition                                                                              |
| ------------------------- | --------------------------------------------------------------------------------------- |
| **LMP**                   | Locational Marginal Price — wholesale electricity price at a specific location and time |
| **MSC**                   | Market Supply Charge — ConEd's retail supply rate for default service customers         |
| **NYISO**                 | New York Independent System Operator — runs the wholesale electricity market            |
| **PSC**                   | Public Service Commission — NY's utility regulator                                      |
| **ESCO**                  | Energy Service Company — competitive retail electricity supplier                        |
| **Load-weighted average** | Average where each price is weighted by the consumption during that period              |
| **Settlement**            | NYISO's process of finalizing actual costs after the operating period                   |
