What is Bandwidth?
Energy bandwidth clauses are found in fixed-rate energy supply contracts between suppliers and customers. When suppliers offer a fixed rate to a commercial customer, they are anticipating that customer’s usage based on historical data. To offer fixed rates, suppliers pre-purchase electricity or natural gas in the futures market in order to hedge their costs. To do so, energy suppliers must commit to certain volumes of energy in which they anticipate the customer to use over the fixed-rate term. In an effort to protect themselves from a variance in customer usage, suppliers sometimes implement bandwidth clauses into contracts that allow for a certain percentage of usage variance. Successful energy brokers are competent at choosing the right bandwidth clauses for their customers.