Making Cents of Regulatory Changes and Their Impact on a Business Customer’s Energy Budget

We get it. Trying to understand energy charges for your business can be a real head-scratcher. From the time you engage a supplier for price quotes, to your first invoice, to your last — many factors can impact what you pay. In a complex industry like energy, it is sometimes difficult to understand what your price is comprised of and why that price could change. Here we’ll explain the cost changes that can occur from a changing regulatory environment and how they can impact your business.

Energy markets and the constructs within which they operate are governed by laws, rules, regulations, and tariffs. The energy regulatory landscape is very dynamic — largely due to the ever-changing physical infrastructure and market fundamentals — and changes to it can occur at any time.

Managing the risk of the unknown

In business, you know it’s a big risk to take on the unknown. In all the examples above, a regulatory action results in a change in the cost to serve your business. As a result, it can be difficult for suppliers like NRG to forecast the cost to serve a particular business at the time they are entering into a supply contract with that customer.

For this reason, we price our customers with all the information we have at the time and include language in our contracts that addresses when and how we may change a customer’s price or pass-through cost changes during the contract term.* Having this language in our contracts ensures that your business and ours are treated fairly and transparently when regulatory events result in cost changes.

NRG does absorb a great deal of risk for our customers — like managing swings in customer usage that are caused by weather. Unlike weather though, the regulatory arena doesn’t often provide forecasts that we can use to mitigate future costs. We may know that a regulatory body is going to make changes in the future, but we don’t know when those changes will occur, what they will be, or what the cost implications will be for our customers’ supply requirements.

Is my business impacted by regulatory changes?

Regulatory changes can impact any business, regardless of who supplies its energy. The type of product you have may determine how “noticeable” the impact of those regulatory changes will be on your costs. For instance, if you have a “fixed all-in” style energy plan, changes in costs will impact the expectations you may have that all components are fixed. If you have a product that passes through your energy supply cost components, you may already be used to cost fluctuations because some or all of your individual cost components are passed through on your invoice at cost.

Perceived impact depends on your energy plan

Let’s look at an example with two possible outcomes based on energy plan type. If electric transmission or gas transportation costs increase because a transmission owner updated its tariff, or a gas utility changed its capacity release program parameters, and:

• You have a product that fixes transmission (power) or transportation (gas) costs: there is now a difference between the cost of transmission/transportation that was built into your fixed all-in rate and the new costs filed by the transmission owner/gas utility. The result could be a new line item on your invoice for the net difference in transmission/transportation costs or a change in your fixed rate to account for this cost change.
• You have a product that passes through transmission/transportation costs: you already have transmission/transportation costs itemized on your invoice and passed through without markup. Because your rate for transmission/transportation changes each time the cost is updated by a transmission owner/gas utility, businesses with this type of product and charge structure are likely used to cost fluctuations. Passing through individual cost components is also a transparent way of handling the costs associated with purchasing energy supply.

Can’t a supplier absorb the changes in costs from regulatory events?

While we can’t speak for other suppliers, NRG and its family of business brands strive to mitigate cost increases and adjust for decreases associated with regulatory changes. However, in order to remain a sustainable business that can continue to supply affordable energy to our customers—it isn’t always financially feasible for us to do so.

Suppliers like us still incur additional costs related to regulatory changes from those entities in the energy supply chain, like pipeline owners, transmission owners, utilities, and the ISOs—whether a supplier collects the additional costs from its customers or not. Over time, if costs aren’t collected when they change during the contract term, this could also result in higher prices when it’s time to renew your agreement.

What costs for business customers are typically impacted by regulatory events?

Transmission costs for electricity supply are a big one. Ask any business with locations in PJM. Transmission is a necessary cost of supplying power to your business. How else would the power get to you from the generator? However, transmission owners recalculate costs often. For some, this happens twice a year as part of a transmission tariff requirement. The good news is: costs do decrease sometimes.

Ancillary services in ERCOT are also commonly impacted. To help ensure there is enough capacity to serve customers through periods of emergency, suppliers must procure ancillary services for their customer load in that region. Regulators may create new ancillary services—as happened in 2023 with the creation of ERCOT Contingency Response Service (“ECRS”), and existing ancillaries can significantly increase in cost, as happened in 2022.

New England has also seen its share of new programs that have resulted in socialized program costs, including the Winter Reliability Program of years past and the more recent Fuel Security Program. Both resulted in new costs to customers.

In New England and New York, gas supply costs are impacted by annual updates to the utilities’ pipeline capacity program parameters, which impact natural gas supply costs like Transportation, Capacity, Storage, and Peaking.

Our take on it

This is just a glimpse into the world of regulatory changes and their impact on retail energy supply costs. As an energy supplier, NRG is committed to maintaining transparency by proactively communicating when a regulatory action causes a change in costs and providing additional information to our business customers to help them better understand the change. We’re happy to work with businesses to rethink an existing purchasing strategy or product structure to better support your business’ risk tolerance for fluctuations in energy supply costs — including those that aren’t yet known.