Electricity and natural gas contract structures, compared
A supply price only means something next to its structure: which parts are fixed, which follow the market and which are passed through at cost. Two offers with the same headline rate can produce very different bills.
| Structure | What's fixed | What moves | Budget certainty | Fits best |
|---|---|---|---|---|
| Fixed price | The supply price for the term | Usage outside the bandwidth, and any charges the contract passes through | High | Tight budgets and predictable load |
| Fixed with pass-throughs | The energy price | Named charges such as capacity, transmission or ancillary services, billed at cost | Medium to high | Buyers who would rather not pay a supplier to carry charges they can manage |
| Index | The supplier's adder | The energy price, which follows the wholesale market | Low | Flexible budgets, or load that can move away from high-price hours |
| Block and index | A block of energy, usually covering baseload | Usage above or below the block, at index | Medium | Steady baseload with a variable top |
| Layered buying | Each layer, at the price on the day it was bought | Layers not yet bought | Builds over time | Large loads with a long planning horizon |
| Natural gas: NYMEX and basis | The NYMEX price, the basis, or both | Whichever part isn't fixed, plus swing volumes | Depends on what is fixed | Gas buyers who want to lock the two parts at different times |
Names vary by supplier and market. Read what the contract fixes, not what the product is called.
Same word, different contract
Procurement vocabulary is not standardized. The same word can describe very different risk depending on the supplier, the market and the contract template. Before comparing offers, pin down what each of these terms means in each offer.
| Term | What it can mean | What to ask |
|---|---|---|
| Fixed | Energy only; energy plus capacity and transmission; or every supply-side charge except new charges added under a change-in-law clause | Which charges are inside the price, listed by name? |
| All-in | Usually every supply-side charge, but never the utility's delivery charges, and often not regulatory changes after signing | What is excluded, and who pays for changes in law? |
| Pass-through (flow-through, at cost) | Billed at the supplier's actual cost, with or without a margin, settled monthly or trued up later | Is any margin added, and how and when is it trued up? |
| Index, variable or market | An hourly day-ahead or real-time wholesale price at a zone, hub or node; or a monthly rate the supplier sets that follows no published index | Which index, at which location, hourly or monthly? |
| Adder | Supplier margin only, or margin plus capacity, ancillary services, losses and fees | Exactly what the adder covers |
| Block | A fixed number of megawatts in a standard shape, or a fixed percentage of each hour's usage | MW or percent, which shape, and how unused energy is settled |
| Bandwidth, swing or tolerance | The usage range the price assumes; usage outside it is priced at market or charged a fee | How wide, measured monthly or annually, and settled how? |
| Load-following | The fixed price applies to whatever you use, with no bandwidth; sometimes with a bandwidth anyway | Is there any volume limit at all? |
| Heat rate | An electricity price tied to a natural gas index times an agreed heat rate | Which gas index and which heat rate? |
Which charges sit inside a price also depends on the market. Capacity, transmission and ancillary services are set differently in PJM, ERCOT, NYISO, ISO-NE, MISO and CAISO, and some are billed by the utility rather than the supplier. See how charges are split by market.
Choosing a structure
Four questions decide most of it:
- How much variance in the energy budget can finance accept?
- How predictable is the load, month to month and year to year?
- How long will the site run as it does today?
- Who will watch the market and act on it during the term?
A plant with steady load and a tight budget leans fixed or block and index. A large portfolio with a planning team can layer. A site that can move load away from high-price hours can carry more index. A site that may close or expand should look hardest at bandwidth and add-and-drop terms; see utility accounts when sites change.
in average savings for a multi-state renewable natural gas producer, whose major purchases now go to competing suppliers with pricing shown side by side. Read the case study.
How Discovery runs procurement
Discovery runs competitive electricity and natural gas RFPs in deregulated markets. Every offer is put on the same terms and shown side by side in each structure that fits the site, timed with our monthly buy or wait guidance. Contracts are tracked in TaraBase through to renewal.
Procurement is paid by a fixed monthly fee or a supplier-paid commission, disclosed in advance. Audits can be bought on their own, with no procurement. See independence and compensation.