Apples to Apples: What to Look for when Comparing Energy Suppliers

For commercial and industrial (C&I) customers, energy usage is an important consideration in doing business. In fact, according to the Department of Energy’s Building Technology Program, energy use in a typical office building accounts for 30 percent of total operating costs—the largest single category of controllable costs. Accordingly, C&I customers should work to ensure their organizations are receiving the greatest value from their energy spend.

Before selecting an energy supplier, the first step is looking internally at the organization’s needs, including what the energy consumption patterns are and what kind of risk tolerance the organization can absorb. Then, customers should start evaluating suppliers for their ability to provide the resources, tools and market insights needed to make informed decisions about energy spending. It’s also important to research the reputation and financial stability of the supplier and if they offer other products or services of interest, such as demand response.

Customers should evaluate all available options and make an informed decision. This approach requires attention to detail and an understanding of the components that comprise the bottom line. 

“Whether the product is electricity or natural gas, customers need to have an understanding of what’s included in competing offers so that they can make an informed decision,” according to Kevin Sheridan, senior product specialist at Hess.

Electricity Pricing

When reviewing an electricity quote, the largest component is the hub energy and congestion (or basis) costs, which can account for 75 to 85 percent of the total cost. Other costs can include line losses, load following, capacity, transmission, ancillaries and renewables.

The cost components that make up an electricity price quote vary by region depending on the grid operator and sometimes by supplier. Some suppliers, such as Hess, do provide estimates for all cost components. If a supplier does not provide estimates for all cost components, it will lead to a misunderstanding of the bottom line. In order to compare electricity contracts on an “apples-to-apples” basis, customers should start with clear, competitive and all-inclusive offers.

Natural Gas Pricing

Natural gas pricing is based on pipeline supply, market demand, transportation costs, storage and liquidity. The largest cost component is the hub price, which can range from 70 to 90 percent of the total cost. The remaining 10 to 30 percent is comprised of the interstate transportation, also known as the basis. The hub price plus the basis equals the city gate price. The local natural gas distribution company adds a price differential to the city gate price to reflect its cost to deliver the natural gas to the customer.

Understanding these cost components is important when comparing supplier offers; another critical factor is understanding the "swing" included in each offer. "Swing" refers to the difference between consumed volumes and contract volumes—and how they are billed. For example, Full Requirements Contracts guarantee the unit billing price for any level of consumption, while a 10 percent swing offer only guarantees that rate for a plus or minus 10 percent deviation from contract quantities.

Getting More with Hess Energy

Evaluating electricity and natural gas suppliers is a complex and important decision. Working with a supplier who can help you understand the right supplier and product for your organization is critical.

Hess can help. With our team of knowledgeable account managers and highly skilled operations staff, Hess offers a range of forward-thinking energy solutions. In fact, over 22,000 customers turn to us for our ability to supply commodities such as electricity, natural gas, fuel oil and green energy solutions.

Additionally, we offer stability as a Fortune™ 100 company with more than 75 years of experience as one of the largest energy suppliers on the East Coast.