Fixed price with pass-throughs: which charges float, and why
In a fixed contract with pass-throughs, the energy price is fixed and a named list of charges is billed at cost as it occurs. Suppliers pass through the charges they cannot hedge well or that regulators and grid operators reset after the contract is signed.
Why suppliers pass charges through
A supplier can lock wholesale energy in forward markets. Some other charges cannot be locked the same way: they are set later by a capacity auction, reset each year by a regulator, or depend on your own load during a few peak hours. Fixing them means pricing in a risk premium. Passing them through means you carry the risk and avoid the premium.
Neither is better in general. Passing through a charge you can manage, such as a capacity tag you can lower by reducing load on peak days, often costs less than paying a supplier to fix it. Passing through a charge you cannot influence just moves volatility onto your budget.
Charges commonly passed through
| Charge | Markets | How it is billed | What drives it |
|---|---|---|---|
| Capacity | PJM, NYISO, ISO-NE, MISO | Your capacity tag in MW times the capacity price, by day or month | Auction results and your load during summer or annual peak hours |
| Transmission | PJM, and on the delivery side elsewhere | Your transmission tag times the zone's network rate | Regulated rates reset at least yearly and your load at the zone's peak |
| Ancillary services and grid operator fees | All | Per MWh, at the grid operator's settled cost | Reserve and regulation needs, which spike in tight conditions |
| Renewable compliance | States with renewable portfolio standards | Per MWh, at the cost of the required certificates | State requirements and certificate prices |
| Uplift and reliability charges | All, notably ERCOT and PJM | Per MWh, allocated by the grid operator | Out-of-market actions to keep the grid reliable |
| Congestion and basis | Index and some fixed products | Difference between a hub price and your load zone or node | Transmission constraints near your sites |
How suppliers describe the same pass-through
The same charge appears under different names depending on the market and the supplier. Capacity alone may be called capacity, ICAP, PLC, peak load contribution, capacity obligation or ICL. Transmission may be called NITS, network service, transmission obligation, NSPL or RNS. In ERCOT, transmission is the 4CP charge on the TDU portion of the bill. Match each name in an offer to the charge it represents before comparing.
Check every pass-through
A pass-through is a calculation, and calculations can be wrong. Each month, the billed amount should equal the tag the utility or grid operator assigned to your account times the published rate for the period.
- Get the capacity and transmission tags assigned to each account for the current delivery year.
- Get the published capacity price and transmission rate for the same period and zone.
- Multiply, and compare with the billed amount.
- Ask whether the supplier adds any margin to pass-through charges, and whether it is in the contract.
Tags themselves can be wrong, especially after meter changes, new service or a change in operations. See capacity tag errors and ERCOT 4CP.
Terms to read before signing
- The exact list of passed-through charges, by name, and the source of each rate
- Whether pass-throughs carry a margin
- When pass-throughs are billed: monthly as incurred, or estimated and trued up later
- Whether "change in law" can add new pass-throughs during the term
- Which tag values the supplier will use, and how corrections are handled
How pass-throughs show up on the bill
Passed-through charges usually appear as their own lines: capacity in dollars per MW-day or kW-month, transmission in dollars per kW or MW, and ancillary services or grid fees per kWh. Some suppliers print the tag values used; many do not. Others roll pass-throughs into a single "regulatory" or "market" line, which makes them impossible to check without asking for the detail.
- Ask for the capacity and transmission tag values used for each account and period.
- Expect true-up lines when a grid operator resettles a period, sometimes months later.
- On dual-billed accounts in some PJM states, transmission may appear on the utility bill instead; make sure it is not charged on both.