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Why should I know about pricing components? By understanding the pricing components that go into calculating your price for electricity, you will be better prepared to ask questions about what is and is not included in the quoted price, and therefore be better positioned to make decisions about which product, offer and supplier will work best for your business. In some cases, components may be included as part of your quote. In other cases, they may be passed through as individual charges. Suppliers may offer different product configurations that are more or less inclusive. A "fixed all-inclusive product" should contain all of the above components wrapped into one rate – your price. For this maximum price protection scenario, the price will contain a premium to cover the cost components that may vary over the duration of your service. This premium protects a supplier, who must estimate all of these changing cost components in order to provide you with an all-inclusive price f...

Electricity Pricing Offers: Cost Components The price or "offer" is quoted in cents per kilowatt-hour (kWh) or dollars per megawatt-hour (MWh). In order to make an accurate comparison between the offers you receive, you need to know for sure what is included in the price, either by reading through the pricing offer or by asking the supplier to clarify. The following items are the common components that comprise an electricity rate. Energy: The cost of the commodity itself. This is usually calculated by a supplier as the cost to purchase the amount of power you need in the wholesale market for the specific length of time (term or delivery period) you are seeking. Capacity: A requirement of the electric system operators in several electricity markets. These charges help guarantee that there will be sufficient generation to meet the maximum energy requirements of the market at all times. Ancillary Services: Charges for the services required to support and maintain reliable opera...

Anatomy of a Pricing Offer Please note: Pricing is typically presented as part of a complete contract, with terms and conditions that may be negotiated. Here, we'll touch on the language and components of your quoted price, but not the complete terms of an energy contract. If you previously took electricity or natural gas service from your local utility, you may not have had to sign a contract. All competitive energy suppliers require a signed contract to serve business customers; therefore this is an important element of working with a supplier that you should consider. When you receive a price quote for electricity or natural gas from an energy supplier, generally there are three core items: Price of energy supply: quoted in cents or dollars per unit Amount to be supplied (i.e. "usage"): how much energy you're expected to use. This is generally derived from historical consumption and future consumption estimates. Duration of the service (i.e. "term" or ...

Supply and Demand of Natural Gas Gas is often the price-setting resource because prices have recently dropped and power generation relies on several different fuel sources. Therefore, the many factors that drive gas prices have downstream effects on electricity supply, demand and pricing. Shifts in factors listed below can also happen simultaneously, making it challenging to forecast market shifts. Imports: Areas that consume natural gas but do not produce it, or do not produce enough of it, must import it from other areas using the available pipeline infrastructure. Demand from imports can create market competition in an area that produces and uses their own domestic source of natural gas. Exports and Liquefied Natural Gas: If gas prices are high enough to justify exporting overseas, producers may choose to tap into new global markets. These markets (new demand) add competition for domestic customers, increasing prices. For example, liquefied natural gas (LNG) is produced by convertin...

What Drives Energy Prices During normal market conditions, market cycle transitions are gradual. There may be peaks and valleys, but prices typically remain within an anticipated range. In addition to these cycles, a broad variety of factors affect the market. Changes in one or more of the following can intensify volatility and cause dramatic price changes within a compressed period of time: Weather: Weather is one of the most influential variables of market pricing because it can be unpredictable and directly affects energy consumption. Of course, weather is predictable to some degree, giving rise to the seasonal market cycles mentioned previously. However, within those seasonal expectations, weather can change unexpectedly and cause unforeseen variances in demand. Extreme Weather: Analysts closely monitor weather forecasts for catastrophic weather events such as hurricanes, floods and blizzards. These events can create periods of extreme price volatility, particularly if natural gas ...

Natural Gas Market Cycles Natural gas prices also follow cyclical patterns: The seasonal cycle: Homes and businesses rely on natural gas for heating during the colder months, creating higher demand and higher prices during winter. Natural gas is also a popular fuel for generating electricity. So demand for gas also spikes, though to a smaller degree, during warmer months when it is used for electricity generation to satisfy peaks during the cooling season. Demand is generally low during spring and autumn. The storage cycle: Most natural gas is produced domestically and shipped to customers through transmission pipelines. Production in the United States and Canada is usually enough to meet demand during spring, summer and fall, but may not be enough during colder winter months. Distribution companies store natural gas during off-peak periods (spring, summer, and fall) and draw from that reserve during times of high demand (winter). The amount of natural gas in reserves is published week...

Pursuing Alternative Forms of Energy Record high prices at American gas pumps and continued trouble-brewing in the Middle East, Nigeria, and other areas of importance to the oil-driven economy have made it clear to Americans that we are in need of developing many new avenues of energy supply and production. In short, we need to reduce our dependency on oil, for it is ultimately finite and, frankly, the cheap sources of oil (not all oil—just the stuff that is cheap to remove from the earth) are running out. Energy consultants and analysts are insistent that cheap oil has “peaked” or is very soon going to peak.  What this means for us is an expensive future—unless we can find new sources of powering our mechanized and electronic civilization, new sources which are alternatives to oil.  We must also switch to alternative forms of energy because our present forms are too damaging to the atmosphere. While this write does not believe that the global warming trend is much, if at all, sustaine...