Transparency Series: Supply Costs

Transparency Series: Supply Costs

June 19, 2018

Part two has arrived. We’ve tackled electricity delivery costs, and now we’re bringing transparency to the supply portion of your energy bill!

To recap the delivery cost post: You pay money that utility companies like Con Edison use to maintain the electrical grid and deliver electricity from the generator to your house, plus associated taxes and charges. This cluster of costs generally make up about two-thirds of your total power bill.

The supply portion of your bill pays for the actual electricity that your utility delivers to your home. But that’s not all that’s included; there are also mandated charges from state agencies, “surge pricing” and administrative costs built in.

If you’re antsy and just want to see how Drift can lower your costs, the bottom of the post will (kind of) reveal our secrets. Otherwise, keep reading to what goes into your supply costs.

Who has control over your supply costs?

Your energy supplier does! Since New York’s energy market became deregulated in the 1990s, consumers can now choose which company they would like to buy energy from. This allows companies to provide more options and cost structures to consumers, which is (and will be) a blog post on its own. Here’s the typical breakdown of the supply portion; you can find how this total price matches up across all Energy Supply Companies (ESCOs) and Con Edison in New York on the Power to Choose website.

The supply breakdown

Supply: This represents the actual electricity that you use in your daily life, and is on a per-kilowatt-hour (kWh) basis. So, the more electricity you use, the higher this total charge will be. This price can fluctuate over the course of the year due to factors such as the availability of certain types of electricity sources (such as hydro and nuclear). The graph below shows the supply price per kWh that Con Edison charged its customer base in New York City over the one-year period ending mid-May.

Source: Source:

Installed capacity: This is a subset of the supply price. It compensates generators in New York State to be ready to turn on production at any second. You wouldn’t normally turn on every single appliance and device at once, and if you did, the likelihood that every single person in your city would also do this at the same time is even more lower, but you still compensate generators to be ready in these extreme cases to avoid blackouts.

 Renewable Energy Certificates (or Credits): Also known as RECs, these certificates represent a certain amount of clean-energy production. Let’s say you wanted to purchase clean energy from a solar farm. RECs are awarded any time a solar farm or other designated source produces a certain amount of clean energy. So if you wanted to buy energy from a solar farm, a REC would serve as proof that the energy you’re buying is clean. To promote investment in clean energy, New York now requires all energy companies to purchase compliance RECs on behalf of their consumers to support clean-energy generators.

Zero-Emission Credits (ZECs): ZECs are mandated credits that consumers must buy per kWh consumed, similarly to RECs. ZECs were formed by the state in order to subsidize a few nuclear plants needed to stabilize the state’s grid.

Line losses: When electricity travels through the system, some of the energy is lost over distance. A very small portion of supply is to make up for the gap between how much is generated and consumed.

Congestion: Similar to Uber’s surge pricing, if a lot of energy is being consumed in an area relative to the amount being generated, the price goes up.

Merchant function charge: For those in NYC, this merchant function charge is specific to Con Edison but is similar regardless of which utility you have. Other suppliers may have these costs integrated into their supply line item. There are many functions that are looped into this charge:

  • Procurement is the coordination of getting electricity for a company’s customer base. This can include doing direct deals with generators and trading energy in the market.
  • Financing: Generators are typically paid weekly, but consumers like you pay monthly. This gap needs to be made up through accounts receivable financing, where the banks are making up that gap for a fee.
  • Collection: The process of the utility sending bills and collecting payments is part of the merchant function charge.
  • Uncollectible accounts: There is a small percentage of bills that the utility will not be able to collect from customers, and this amount is estimated and charged to all of their customers to compensate.

Gross Receipts Tax (GRT) & other tax surcharges: These are taxes imposed by both New York City and New York State that must be collected by Con Edison and eventually remitted to the city and state agencies.

So there you have it! These are all parts of what goes into your supply costs. So, how is Drift different?

Drift cuts your supply costs in half!

Drift’s software connects you to local power producers to get you the best supply price possible, cuts out the bank fees, and reduces congestion (surge pricing) through artificial intelligence. That’s why Fast Company voted us one of the world’s most innovative energy companies of 2018! Get an estimate to see how much you could save with Drift.