|Your Energy Manager|
Topic: Bandwidth and Material Change Contract Clauses
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.
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 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: