Comparing Energy Price Quotes.
Energy Price Variables
There are many variables in energy prices from retail energy suppliers that must be considered when properly comparing quotes. In order to be the best consultant and advisor to your customers, you must understand all of the components in a retail energy price and be able to thoroughly explain the details to your customers. In summary, there are a few major factors that need to be analyzed to determine if the quotes you are comparing are truly apples to apples. These retail energy price components are:
- fixed components vs. variable components
- bandwidth or usage swing
- passthrough adjustments
- applicable taxes
We will outline each of these categories individually below.
Fixed vs. Variable Components
When obtaining a fixed price quote from a supplier, a seasoned energy broker will understand the fixed price components in the rate compared to any components that might be index-based or variable. When looking at an electricity supply quote, there are four major factors that can be fixed, pass-through, or variable: the electric commodity, transmission, capacity, and ancillary fees. In a fixed natural gas rate, the major components are the natural gas commodity, transport, and local basis. A good broker will ensure that all supplier quotes have the same fixed components so it is a true one to one comparison.
Another key factor that affects the price is bandwidth or usage swing. This calculation is the total amount of energy a customer is able to use under a fixed-rate contract without being penalized or paying a different rate other than the fixed price. In a 10% swing agreement, the customer is allowed to use 10% more or 10% less than a pre-determined baseline figure. Otherwise, the supplier will charge the market price for the excess usage or penalize the customer for not using enough energy. Typically, the tighter the bandwidth parameters the lower the price, and the looser the bandwidth, the higher the price. So, a good energy broker will ensure that all supplier price quotes he is comparing for a customer have the same bandwidth requirements. Read this article here on bandwidth and how it directly affects energy rates.
Traditionally, a fixed price was a fixed price, and that was the total $/kWh or $/CCF that a customer paid for the duration of the agreement. However, recently with energy markets experiencing more volatility, energy suppliers have added clauses to their contracts that allow them to pass-through incremental wholesale costs to the customer – even in the middle of a fixed-rate agreement. Some suppliers offer fixed-rate contracts that do not contain this pass-through language. It is important to understand the terms and conditions of the fixed rate from each supplier when comparing quotes. A slightly higher price that is truly fixed with no pass-through language could be more attractive than a lower price that is subject to become higher in the middle of a contract term.
In many deregulated states like Pennsylvania, Maryland, and New Jersey, energy supply rates are subject to state tax. In Pennsylvania, customers pay a Gross Receipts Tax for all energy supply charges in addition to state sales tax. Some energy suppliers offer price quotes including tax and some offer quotes without tax. In addition, rates on supplier contracts may or may not include applicable taxes. It is vitally important to understand whether a price quote or contract contains taxes so that you can accurately compare supplier quotes.