News

Understanding Your Energy Contract: Part 1

August 28, 2020

APPI Energy provides our clients a comprehensive way to reduce energy expenses and create budget certainty.  Unbiased and independent, we perform extensive due diligence of competitive suppliers in deregulated markets to provide data-driven expert consulting for the procurement of electricity and natural gas. Our experience in deciphering energy contracts differentiates us as consultants and allows us to fully analyze the details of your current and future opportunities. As a consumer, it is important to understand the terms and conditions included (or not included) in your contract and be aware of how they may affect your bottom line. Here are a few important questions to discuss with your APPI Energy Consultant.

Q: What are the components included in the contracted rate? Are they all fixed? Are they variable? What is the difference?  

A: Knowing what is included in your “fixed” or “all in” rate is essential to understanding your energy bill. Some suppliers may present attractive pricing, but the rates could exclude unknown or uncertain fees that are required for service. Instead of seeing these costs in your initial contracted rate, they may be deferred until they are realized, and then subsequently passed through and reflected on your invoice. These pricing adjustments are often the result of fluid energy cost components, such as capacity, transmission, and possible future regulatory changes.

Although a fixed price option is often the best opportunity for budget certainty, recognizing what can trigger a price increase will allow for a proper understanding of the costs of these elements so that unknown fees do not become detrimental to your bottom line.  If you choose a variable rate plan, your price for electricity or natural gas supply will fluctuate month to month.  These products work best for active, sophisticated buyers who consistently monitor the energy market.

Q: A common way “fixed” prices increase is through a “regulatory change” or a “change in law” clause in the contract. When are these applicable and when can they occur?

A: While this language has historically been used to cover items related to future changes in laws, or a regulation impacting the cost to supply electricity to consumers, some suppliers are revising or expanding their application of this contract language. Typically, the broader the language of the contract, the less “fixed” a price tends to be. APPI Energy Consultants have expert knowledge with interpreting contracts, explaining how suppliers have historically enforced contract language and price changes, as well as any impact these terms and conditions could have on a customer’s contracted rate.

Change in law clauses have been interpreted to include, but not limited to, any change in governing laws, regulatory changes, market rules, load profiles, independent system operator (ISO) rules and protocols, how a utility or ISO calculates usage, or changes in the interpretation and application of certain rules. When suppliers invoke or enact these clauses, any change, including changes in tariff, rate class, procedure, or process, including federal changes to infrastructure, transmission, and overall grid performance, that alters the supplier’s cost, can also affect the price you pay. A change in law clause could also benefit you if it decreases a cost component or if your load profile changes significantly in respect to lowering your capacity or transmission obligation tags. Anything your supplier over collected could be credited to you, if there is bilateral language in the agreement.

Q: What are capacity, transmission, and distribution charges, and how are they handled during the term of the agreement?

A: Capacity charges help guarantee that there will always be enough energy on the grid to service all energy consumers. The fee is calculated based on the amount of energy used during select peak load times, which are based on the previous year’s peak load days. Transmission charges account for moving power from the generation source to your local distribution company, usually your electric utility. Budgets for new energy infrastructure and upgrades are often baked into your transmission charge. Distribution charges account for moving power from your local distribution company to your business and can change on an annual basis depending on any infrastructure changes that occur. APPI Energy will educate you on how to avoid surprises and unexpected costs with any non-fixed components of your energy bill.

Q: Will you receive supplier consolidated billing, utility consolidated billing, or dual billing?

A: In addition to a wide range of thoroughly vetted suppliers, APPI Energy clients have options when it comes to their monthly energy bills. With supplier consolidated billing you will receive one bill from your supplier which will include your energy supply costs, as well as your utility charges, such as transmission and distribution charges. Utility consolidated billing is the reverse process of supplier consolidated billing; instead of paying the supplier directly, you pay the utility, and the utility in turn pays the supplier for the supply portion of the bill. Dual billing is offered to those who prefer separate bills from both the supplier and utility.

APPI Energy will help you minimize unnecessary risk while ensuring you understand what you are buying. We are committed to complete transparency between our clients and their energy suppliers.  We thoroughly vet and study our select suppliers’ contract terms and conditions, and we choose to only work with organizations that meet our stringent standards. With 24 years of energy market and supplier relationship expertise, APPI Energy is committed to providing data-driven procurement solutions and expert recommendations with clarity. Contact APPI Energy today to review your current energy contract at 800-520-6685 or visit our website www.appienergy.com

Sources:

Constellation

Direct Energy Business