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