Energy Supply Components

Note: The below represent generic supply bills, and do not include utility costs or invoices. How these supply costs are allocated may change significantly based on 1) where your facility is located geographically and 2) what your unique load profile is (how much energy you use on an hourly basis). For instance, Basis is negative for many Natural Gas consumers in Pennsylvania. Similarly, Texas doesn't have a Capacity section on Electric bills. Other charges (such as Supplier Margin at ~2%) are present, but are not typically broken out as line items on a bill -- many of these are lumped into the Energy cost and are not transparent on an invoice.

Depending on your product, these costs may show up as individual line items or be bundled together. When bundled, or fixed, the supplier typically charges a small risk premium. When these charges are passed through, you take the risk as the energy buyer. If you'd like to learn more, read about different procurement strategies or contact us.

Natural Gas

ENERGY

This is the cost of the actual commodity, the stuff you burn. Of importance is where this fuel is delivered. Delivery could be defined as your facility location, or another pricing location (such as the utility city gate or another pricing hub). Henry Hub in Louisiana is the most liquid of all natural gas trading hubs and is the delivery point we use here in this example. It's called the "NYMEX" since it's traded on the New York Mercantile Exchange which, confusingly, is owned by the Chicago-based CME Group. You can see current prices here

BASIS

Basis represents the cost of getting the gas from Henry Hub to your location (or another nearby location, such as a utility city gate). For most buyers, NYMEX + basis makes up the bulk of costs. This sum is also the cost of gas that is typically used to compare prices from different suppliers or to compare a supplier to a utility rate. In rare situations, basis can actually be negative. This tends to happen in parts of the country where gas is "trapped," which means there is high production capability, but not enough pipeline capacity to export the gas (such as in northern Appalachia). 

TRANSPORTATION FUEL (FUEL LOSSES)

Some of the fuel is lost when transported over long distances through small leaks in the pipes. Other gas is needed to pressurize the gas that's being distributed. This is sometimes included in the energy cost, but is typically <5% if broken out.

SWING ADJUSTMENT

If you use more or less gas than your contract said you could, that additional gas will be priced according to a defined pricing point. It could be the same price as your contracted portion, but it could also be higher or lower, depending on market conditions. If you have 100% swing specified, then you can use as little or as much as you want and you'll never pay anything different than your contracted rate. However, the supplier will add a little insurance premium to the price if they take on this risk. If instead you have a 0% swing contract, then any gas you use that's over/under what your contract says will be charged this market-based rate. 

POOL REQUIREMENTS

Some utilities offer storage that can help even out how much gas you need to buy. On days when you burn a little less than expected, the storage fills up. On days you burn more, you take a little bit out of storage. Your contract will specify whether you permit your third-party supplier to manage this for you. If so, this can be done at a credit or a cost to you, depending on the situation.

Electricity

ENERGY

The cost of the electricity you use to turn on your lights and run your air conditioning. This is often divided into "On Peak" and "Off Peak" time frames. Definitions vary, but On Peak energy is typically weekdays from 7am to 11pm and is more expensive. Off Peak energy is weekday from 11pm to 7am and all 24 hours of holidays and weekends. Occasionally a "super peak" is used for a few hours in the afternoon. The On/Off Peak distinction matters when you do a Block and Index product. Understanding how On/Off peak is defined can also help reduce some demand based charges, such as capacity and other demand charges found on utility bills. 

CONGESTION

Similar to Basis in Natural Gas, Congestion is the cost associated with transferring power from some more liquid pricing hub to your location. This is often lumped into the energy cost, especially for less intricate contracts.

LINE LOSSES

Again, a cost similar to one seen on Natural Gas bills. When electricity moves from the power plant to your facility, some of the electricity is used up as heat in the wires. (This is similar to how water might evaporate in a canal.) Thus, the amount of electricity that goes into the wires isn't the same as the amount that comes out the other end. In order to adjust for this discrepancy, prices or (usually) usage values are scaled up. Sometimes these charges are fixed and lumped into the energy cost when they show up on a bill.

CAPACITY

This cost has been rising lately and now represents one of the largest components on many electricity bills. This cost is associated with maintaining reliability of the grid. The grid has to have enough capacity to produce reliable power on the hottest days of summer and the coldest days of winter. The capacity cost is associated with the system being designed for these "maximum use days." Importantly, the capacity costs you pay for a whole year can be determined in just a few hours in the summer on one of these maximum use days. How much you use at one point in time is called your "Demand" and is measured in kW instead of kWh. Capacity is a demand-based charge (kW), not an energy-based charge (kWh).

TRANSMISSION

In order to maintain a reliable grid, power must also move across large transmission networks from state to state. The transmission charge helps maintain these high-voltage lines, as well as other local grid equipment. Some of this cost category is set by energy usage (kWh) and some is set by demand usage (kW).

ANCILLARIES

A collection of tens of smaller charges associated with maintaining a reliable grid. Some of these are credits, some are charges, but they net to be about a 2%-5% cost on most electricity bills.

RMR

RMR stands for Reliability Must Run. This is also a charge associated with maintaining a reliable grid. As plants age and fuel costs fluctuate, some power plant owners don't make any profit from running their plants and want to turn them off. But grid operators may require these plants to continue operating so the grid functions properly. This RMR cost is then split among the facilities in the effected region. This cost rarely occurs for most electric customers and is often relatively small.

RPS

RPS stands for Renewable Portfolio Standard. Many states have some sort of mandate requiring renewable energy. These fees have different names and treatment around the country, but many do show up as line items on bills.

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