The second in a two part series on invoicing and supplier invoices. Read the first post on the subject here. We have been running through a series of topics over the past several weeks that have been inspired by frequent energy cost management questions that we hear from our clients.

Invoice mechanics

Supplier costs are the same no matter what kind of contract you have purchased from your supplier. It is simply the details and approach that a supplier takes to calculate your charges that will differ, as well as the margin that they will charge you for bearing various risks on your behalf. (The topic of margin will be the subject of a future post.)

Suppliers use details from your signed contract to calculate your charges.

At a high level, here’s how your invoice will be calculated:

If you signed a Fixed Price contract then your monthly costs are: (monthly kWh usage x contracted fixed price rate) + taxes = total invoice cost

If you signed an Index contract, there are several parts to your monthly charges

• Index Monthly Energy Costs: (monthly usage x locational marginal price as determined by your contract terms) + one or more adders – per kWh – to cover the other components of capacity cost.
• There may be a single adder for all the other costs or there may be pass-through terms in the contract for Capacity costs and for Ancillary Services costs.  Some contracts even have pass-through terms for the Loss & UFE component of commodity costs.  You must monitor these pass-through charges in order to evaluate the cost impacts of your contract. You can check your charge rates against the index costs shown in the MWh.
• Capacity cost pass-through will be based on your account’s assigned ICap “Tag” and an auction rate specified in your contract.
• Ancillary services cost pass-through charges will be based on your supplier’s actual cost rate over their entire load portfolio.
• Pass through charges for Loss & UFE are difficult to verify and may not be finally defined at the time of the invoice.  Watch these to make sure they are reasonable.

If you added a Block Energy contract to your Index Contract, there will be an additional charge or credit calculated as:  (block contracted cost +/- block clearing price * block usage).

Taxes are rarely included in the supplier contract rates and these should be itemized on the invoice. There is no exemption from Gross Receipts Taxes, which vary locally. Sales taxes will be added; if you are tax-exempt it is up to you to insure that your supplier has recorded your tax exemption and is not charging you sales tax. Note also that in some states and jurisdictions residential customers pay a lower sales tax than commercial customers. Again, it is the responsibility of the customer to verify your tax status.

Finally, if you have hired a consultant or broker, often their fee for services will be added to the supplier costs. So, in addition to supplier margin, you will pay a broker fee that is embedded in your invoice costs.

Bottom line for businesses and energy buyers: Ask for an invoice copy before you sign your supplier contract so that you know what to expect when it comes time to review your invoices. Also, to the extent possible, insist on transparency– ask for a list of all fees and detail around those fees. You are the client, you should know what you’re paying and why.