In the energy broker industry, consultants and brokers make a living finding low-cost energy supply for their commercial and industrial customers.
And 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 about energy pricing in general.
Why It’s Important To Understand The Difference Between Matrix vs. Custom Pricing For Your Customers
There are many differences when it comes to energy matrix rates vs. custom energy rates. Let’s explore the key differences below and understand how to utilize both pricing methods for your commercial customers.
What is Matrix Pricing?
In the retail energy sector, energy suppliers rely heavily on energy brokers for commercial customer acquisition. In fact, today the majority of commercial energy supply transactions are executed through an energy broker. In order to streamline pricing operations for brokers, most retail energy suppliers publish matrix pricing that allows brokers to obtain price quotes immediately. Matrix rates are a list of prices offered by a supplier that can be sold directly to customers without having to contact the supplier for a price quote. Here are some of the things you need to know about matrix rates:
The Types Of Energy Matrix Rates
Retail electricity suppliers offer different energy rate options on their matrix pricing. Some of the types of energy matrix rates include:
Fixed Rates (with transmission adjustment passthrough charges)
These are standard fixed energy rates that have contract language allowing the energy supplier to pass through transmission adjustment costs to the customer in the middle of a contract. Most energy suppliers have defaulted to these types of fixed rates on the matrix plans.
Super Fixed Rates (with no adjustments)
In response to the negative feedback on transmission passthrough charges, some larger suppliers are offering super fixed rates that contain zero mid-contract adjustments. These rates tend to be higher as suppliers charge a risk premium.
Energy Only Rates
Although more popular in custom rate scenarios, some energy suppliers offer energy-only rates where the energy portion of the supply rate is fixed and the transmission, capacity, and other ancillary costs are passed through at true cost. These are popular with customers that are planning future energy efficiency projects as they can double benefit from the energy reduction and lower transmission and capacity costs.
Fixed Adder Rates
Fixed adders are index market energy rates that are calculated using the wholesale cost of electricity each month plus a fixed profit margin for the energy supplier and broker. These are ideal for customers looking to take advantage of downturns in the market.
NYMEX+ Rates (natural gas)
Similar to fixed adder electric rates, NYMEX+ rates are index-based natural gas rates that follow the ups and downs of the NYMEX natural gas market. These rates are calculated each month by taking the last day’s NYMEX settlement price for the month and adding a fixed amount to the rate. The adder includes the supplier and broker margin plus any basis costs, which are the difference between the NYMEX market price and the regional price at the customer’s location.
The Pros and Cons of Matrix Pricing
Matrix pricing has many benefits but can also have its downsides. When considering whether you should use a matrix rate or custom price for your customer, there are several factors to consider. Let’s start with the upside:
- Easy to use and scalable
- Fast pricing turnaround time
- Great way to predict custom price trends
- No need to contact suppliers for quotes
- Great for accounts with poor load factors
- Great for small commercial customers
- Can be higher than a custom rate
- Not all customers qualify
- Limited customization
- Standard contract terms – no special language
- Not great for larger customers
What Is Custom Pricing?
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.
The Pros and Cons of Custom Pricing
Custom pricing has a lot of pros and cons, so it’s important to choose wisely before you decide how to price a customer’s account. And remember, some retail energy suppliers will not allow you to use their matrix rates after you have custom priced an account. This avoids letting brokers use lower matrix rates when custom rates are not favorable.
- Can be lower than matrix rates
- Great for customers with high load factor ratings
- Unlimited customization and hybrid energy supply products
- Special energy contract clauses
- Unique contract term lengths
- Can be higher than matrix rates when load factor is low
- Can disqualify a customer from using a matrix rate
- Turnaround times can be lengthy with some suppliers
- Hard to scale as logistics are complex
Need Help Pricing An Energy Account?
In summary, there are many benefits to utilizing retail energy supplier matrix rates from convenience to fast transactions; however, understanding the difference between custom and matrix energy pricing is critical to your success as an energy broker. Do you need help pricing a commercial energy account? Contact us today to speak directly with our energy pricing desk.