In This Issue
Potential Triggers
Bandwidth
Material Change
Planning Ahead
Potential Triggers

There are many things that can alter a customer's energy consumption and lead to a price adjustment through material change. For example:

-Opening or closing a plant/factory.

-Adding an additional shift to a company's schedule.

-Adding onsite generation such as solar panels or a combined heat and power (CHP) unit.

-Adding a new production line for a manufacturing plant.

-Participating in a demand response program.

-An extremely cold winter or hot summer compared to the previous year.

When these fundamental changes occur it is important to understand how it might affect your energy usage and contractual obligations. Giving your supplier advanced notice allows them to plan ahead and buy or sell energy as needed before the change occurs. This cooperation can often eliminate any Material Change clause penalties.
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Topic: Bandwidth and Material Change Contract Clauses    
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Independent Energy Consultants, Inc. is committed to helping its clients make well-informed and cost-effective decisions regarding their energy supply and consumption. We are sending you this newsletter to help you understand how decisions made, or not made, affect your company's bottom line.
Bandwidth

Many utility contracts include the terms bandwidth and material change, but what does that actually mean to the customer? Bandwidth is an allowed deviation from predicted and contracted energy usage. If a customer goes above or below their agreed-upon bandwidth the supplier would need to sell the leftover energy or purchase the needed excess on the spot market. That spot rate would then be blended with the contract rate to produce a bill rate higher or lower than the contracted rate.

In some contracts a customer may be offered "unlimited (or 100%) bandwidth" which allows them to deviate from their contracted consumption as much as they want from month to month. A good consultant will help identify whether or not a customer is paying a reasonable premium for additional bandwidth, and whether or not they need it based on their historical load fluctuation.

Bandwidth clauses tend to be difficult and costly for suppliers to monitor and bill. For example, one customer may be out of tolerance on the high end and be offset by another who is out of tolerance on the low end, making the net effect to the supplier's portfolio minimal. In these cases suppliers can spend needless time and effort to enforce Bandwidth clauses. Therefore, the trend is moving towards something easier to administer - a contract clause known as "Material Change."   
 
Material Change

Material Change is similar to bandwidth but is designed to respond to more long-term changes in a customer's energy consumption.  Material change looks for fundamental shifts in a customer's usage pattern. 

 

Material Change takes effect if a customer deviates beyond an established swing tolerance (for example +/-25%) for 3 months in a row. Once this happens the supplier will begin asking what has changed and may enforce a bill adjustment for any months going forward that exceed the swing tolerance. At that point any excess or under-usage will be billed at the spot-market price. For example: 


Planning Ahead

Material change is a protection for the supplier. When entering into a contract the client has to predict how much energy they will use, and it's important to let a supplier know if there are any changes on the horizon.

Being able to closely predict energy usage helps the customer as well, as it can earn them a better rate. If a supplier doesn't know how much energy their client will need they will add a "forecast" risk premium to their rate. On the other hand, if they know ahead of time precisely how much energy they need to buy, their risk and offer price becomes lower. Capturing detailed historical usage information and anticipating future changes in energy consumption is helpful to all parties. 
Independent Energy Consultants has a wealth of experience with energy supplier contracts. In addition to finding our clients attractive rates we know what to look for in contracts to negotiate terms that best suit your specific needs. 
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