Your energy costs include 2 major components: Supply and Delivery. For customers in deregulated markets, this creates choices for you with regard to billing and, interestingly enough, these choices can have important implications for the kind of supplier products you can buy.

How do suppliers invoice?

Choice 1: Suppliers may invoice you directly (known as “dual” billing because you will receive 2 invoices, one from your supplier and one from your local utility).

Choice 2: Or, in some cases, utilities can invoice you for both delivery and supplier costs (known as “single bill”).

Note that if your priority is to receive only one single bill, it may mean that you have fewer product alternatives. It can be difficult (or impossible) for suppliers to bill complex products and provide the necessary single cost rate to utilities that is required for deliver a single bill. Be aware of the implications of your choices if single billing is your priority– it may limit your risk management capability.

Suppliers rely on your utility for usage data.  Information from utilities can take a day or more to get from your utility to your supplier.   If the utility corrects a meter read at any later point in time, the supplier must also issue a corrected invoice.

(For definitions of all components of costs, see The Megawatt Hour’s Resources Page.)

Components of Costs

In most regions of deregulated markets, your electricity costs will be made up of the following 2 components:

Commodity costs (40-60% of your total cost, depending on your region and your usage profile) which include:

Energy costs vary from 30 – 50% of your bill. When energy markets are low (the way they are now), capacity costs (see below) become a larger component of your invoice and become a bigger driver of costs.

Capacity costs vary from being 25 to 60% of your bill depending on the market, the time of year, and the local capacity markets. Since electric energy cannot be easily stored, the ISO administers a market for installed generation capacity to insure that, over the long run, adequate generation resources are available to supply load (essentially, customer demand). Each electric account is assigned a capacity obligation and each retail electricity supplier must purchase installed capacity to meet that obligation. In NY City, where index energy costs are low, capacity costs ended up being 66% of the invoice on the May invoice.

Ancillary services and other ISO reliability charges. For a definition of ancillary services, see our Resources Page.

Losses and UFE (zonal load true-ups)– UFE stands for “Unaccounted for Energy” and is defined by the NY ISO in the following way: Unaccounted for Energy (UFE) is the difference between the NYISO sub zonal load (adjusted for load modifier generation and Municipal /Co-Op load) and the sum of the calculated supplier loads. UFE are, essentially, losses or differences between what the ISO expects zonal load to be and the sum of what all suppliers, municipalities, co-ops and load modifier generation loads are calculated to be; hence the term, “unaccounted for”.

Delivery costs–

Delivery costs comprise anywhere from 40-60% of your total electricity costs are specified in a tariff through a negotiated process between your utility and your local public service commission (PSC/PUC- a regulatory agency). Your delivery costs are in no way affected by your choice of commodity supplier.

These charges include:

Fixed charges per month

Demand charges and, for larger accounts, kVar charges

Energy charges- relatively small—in fact, there may be none for larger accounts

Several monthly varying cost adders charged per kWh or per kW.

Bottom line for buyers of energy: Invoices shouldn’t be inscrutable. Having even a high level understanding of your invoice costs will help you hone in on the major cost drivers, especially those over which you have the most control.

• Understand your monthly and annual charges so that you can create effective programs to control costs.
• Contact us if you need help reviewing your utility invoice. [maxbutton id=”2″]

Next up…. Part 2 in the series. What are the mechanics of supplier invoice calculations and how do they vary by supplier product?