Can COVID-19-Related Usage Changes Impact Your Electricity Supply Bills?3 min read
The COVID-19 pandemic has no doubt had an impact on commercial and industrial energy usage, with some businesses seeing average electricity reductions in the range of 5% to 15%. In many cases, reduced consumption has resulted in financial losses to suppliers on various existing fixed price agreements. To make up for these financial losses, some energy suppliers may be incorporating unexpected pass-through charges into their electricity supply bills.
It’s important to review your current contract to determine whether your supplier has the ability to pass through these costs as well as your monthly bills to figure out how long they may have been invoicing you for these costs.
- If your contract includes a “material change” or usage “bandwidth” provision, it’s important to review those provisions carefully to understand if/when penalties may occur.
- It’s also important to understand if/how usage changes may impact any fixed demand-based charges, such as capacity.
These situations are prompting many businesses to reconsider how they shop for electricity supply, including which contract provisions they may value in the future.
Understanding Common COVID-19-Related Charges
Material Change Provision
Does your contract include a material change (aka material adverse change or ‘MAC’) provision? If so, it likely allows the supplier to pass through costs associated with a material change in use. It’s important to understand what a supplier defines as “material change;” for example, it may be something similar to usage changes ‘in excess of 25% of historical monthly use for two or more successive months’ or it could be defined differently, or not at all. Review your contract to become familiar with any applicable material change clause.
At Constellation: Most power contracts do not currently include a Material Change provision. However, we may require a Material Change clause for certain heavily volatile loads like process loads (in which case this would be clearly spelled out in our agreement).
If your contract includes a bandwidth provision, it’s important to understand that your contract likely includes a pre-determined contracted “band” around a stated use, outside of which additional costs may be incurred. Generally, the stated use is consistent with the customer’s historical use, but that is a data point that should be reviewed and understood. Often the band may be wide enough to cover ordinary weather variations (for example, no additional costs incurred as long as usage is within 10% of historical monthly volumes), but it’s important to understand the details regarding how/when additional costs may be incurred and to consider if your company is able/willing to bear this usage deviation risk.
At Constellation: Constellation’s current power agreements typically do not include a usage/bandwidth restriction.
Capacity & Transmission Costs
Because usage changes can also impact a supplier’s ability to recover costs for fixed demand-based charges like capacity and transmission, it’s also important to understand if your contract enables a supplier to pass through penalties for capacity and transmissions costs due to usage reductions. For example, if the cost of capacity to serve your account is $5,000 and you’ve historically used 1,000 MWh annually, a supplier may have included $5/MWh ($5,000 ÷ 1,000) in your fixed price to recover this cost. If your usage was reduced and came in at half the expected volume (500 MWh for the year instead of 1,000 MWh), then the $5 per MWh charge multiplied by the 500 MWh volume would enable the supplier to recoup only half ($2,500) of the $5,000 cost they were expecting to recoup. If your contract allows for such adjustments to capacity and transmission costs, you may incur additional penalties when notable usage changes occur.
At Constellation: Customer contracts with fixed (or secured) capacity costs will not incur any capacity or transmission price adjustment from Constellation for usage-related reductions.
What to Do Now?
A supplier’s track record, as well as transparency in its contracts, are the best indicators of how future agreements will be administered, especially when something out of the ordinary occurs.
We strive to ensure you are as knowledgeable as possible to make informed energy purchasing decisions. That is why we make it a priority to share insights and information through our webinars, blogs and other resources, and to provide transparent contracts that enable you to select products that meet your specific needs and expectations.
Some additional resources on this topic include:
- Understanding your Energy Contract When Faced with the Unexpected
- How to Read Your Energy Contract Like a Professional
Get in touch with your Constellation sales representative if you have any questions. Learn more about Constellation’s fixed (or secured) electricity solution by clicking here.