Energy Pricing: Custom vs. Matrix Rates.
In the energy broker industry, consultants and brokers make a living finding low-cost energy supply for their commercial and industrial customers. Since there are hundreds of retail suppliers and offerings in the market, it can be quite complex to navigate all supplier rates to find the lowest offer for a customer. The most successful energy brokers in the country are masters at knowing how and when to price customer accounts. One of the major factors differentiating successful brokers is the ability to quickly tell if a customer is best-fit for a matrix price or a custom price. In fact, a seasoned energy broker can look at a single bill copy and know in seconds how to obtain the best pricing for the customer. To truly understand how to find the lowest rates for your clients, you must understand the key differences between matrix and custom energy pricing, and how to determine when to use each.
Matrix prices are daily, weekly, or monthly rates posted by retail energy suppliers that can be sold to customers “off the shelf”. See more on matrix pricing here. Matrix rates are blanket rates that give brokers discretion to make offers to customers in real-time without having to check with the supplier first for a quote. In fact, many brokers who sell energy to smaller commercial customers rely solely on matrix pricing since it allows them to close deals on the spot without disrupting the sales process.
Since all suppliers base their retail price quotes on individual customer load factor ratings, matrix pricing is calculated using an average load factor for a certain market or utility. Most utility companies publish data showing average load factors for various customer rate classes, and suppliers use this data to set matrix rates. In addition, suppliers utilize data on their own customers in each utility to make more aggressive matrix offers. For example, in a utility where commercial customers have an average load factor of 40%, a supplier who has a pool of customers in that utility with an average load factor of 65% can offer more aggressive pricing due to their cost on the total pool. On the other hand, a supplier just entering that utility with no customers might be forced to calculate their matrix rates closer to the utility average of 40%. More on how load factor affects retail energy pricing here.
Energy brokers who know each suppliers’ matrix rates and how they are calculated can take advantage of certain pricing opportunities. For example, a broker might realize that a single supplier has very aggressive matrix pricing in a certain utility. Maybe that supplier has a good customer base that allows them to take on more risk, or maybe the supplier is looking to acquire many new customers in that market, no matter the cost. A good broker will place customers with that supplier who might not get better rates elsewhere. On the other hand, if there aren’t any attractive matrix deals in a market, a seasoned broker might search for customers with higher load factor ratings so they can benefit from attractive custom rates. More on custom energy pricing below…
Custom pricing, unlike matrix pricing, is not “off the shelf” – it’s customized based on each customer’s individual load profile. Typically, a broker might wait one to five business days to receive a custom quote from an energy supplier. In quoting custom rates, retail energy suppliers take many factors into consideration: the customer’s creditworthiness, energy usage history, peak energy demand, load factor rating, utility, rate class, business type, usage profile., and more.
A seasoned energy broker is able to quickly calculate load factors to determine if the customer is best suited for a custom quote. Typically, all customers with load factors greater than 50% can benefit from a custom quote. In addition, matrix pricing is usually only available to customers that use less than 1,000,0000 annual kWh or 100,000 annual CCF of natural gas. Larger customers who consume more energy are always custom-priced by suppliers. The supplier simply does not want to take on the risk of blindly offering a large customer a matrix price that is not calculated based on the customer’s usage profile.
Moreover, all custom supply products such as block + index, load following block + index, call options, and more are all custom solutions offered by suppliers. When a broker is working with a larger customer that requires a more tailored solution, the broker is required to custom price the account. In order to properly obtain a price quote from multiple suppliers, brokers, and energy sales professionals must follow a standard process. Click here to learn more about how to properly submit pricing requests.