In most of the country a business buys electricity from one company that owns the whole chain. In the states that restructured their markets, the bill is split between two parties, and the split decides which of your charges you can negotiate and which you cannot.
The distinction is simple to state. Getting it wrong is how a site signs a supply contract expecting its bill to fall by a third and watches the demand line stay exactly where it was.
Two halves, two owners
The Energy Information Administration describes the chain in three stages: generation, transmission and distribution. In a restructured state the customer can choose who provides the first stage. The local utility keeps the wires.
Pennsylvania's commission puts the consequence plainly on its consumer site: you can switch the company that generates your electricity, but the distribution service remains with your local utility and remains regulated by the commission. Texas runs a different model in its competitive areas, where the retail provider usually sends the bill and passes the wires company's delivery charges through, but the underlying split is the same.
| Half | What it pays for | Who sets the price | Can you shop it? | Typical units |
|---|---|---|---|---|
| Supply (generation) | The energy itself, and often capacity | The supplier, by contract, or the utility's default service | Yes | ¢/kWh, sometimes pass-through $/kW |
| Transmission | High-voltage network | Federal rates, recovered on either half depending on the state | Indirectly | $/kW, sometimes ¢/kWh |
| Delivery (distribution) | Local wires, transformers, substations, metering | The utility's tariff, approved by the state commission | No | $/kW, ¢/kWh, fixed monthly charge |
| Riders and taxes | Programs and costs recovered by formula | The commission and the taxing authority | No | Varies by rider |
The transmission row is the one that varies. Pennsylvania's commission notes that transmission charges are rolled into generation when you buy from a competitive supplier. In other states transmission stays on the delivery side. Your own tariff and your own contract say which, and the answer changes what a supply offer is really worth.
Where the demand charge lives
On most restructured bills, the largest dollar-per-kilowatt charge is on the delivery half: a distribution demand charge set in the utility's tariff, based on your billed demand for the month. No supplier can change it, because no supplier sets it.
Two demand-linked costs can sit on the supply half instead:
- Capacity. In PJM states, the cost of capacity is allocated to each account through a peak load contribution measured on a handful of system peak hours. A supplier either folds it into a fixed price or passes it through. See the PJM capacity tag.
- Transmission, where the state places it on the supply side. It is typically allocated on a similar peak-based measure.
So a site that reduces its peak can see the saving arrive on both halves, but through two different mechanisms, on two different measurement dates, and on two different lines. Reading only the demand line on the delivery side undercounts the value of a kilowatt avoided. What a kilowatt of avoided peak is worth shows how to add them up.
The Price to Compare, and what it leaves out
Several choice states publish a Price to Compare: the utility's default generation price per kilowatt-hour, printed so that a supplier's offer can be judged on the same basis. For a household on a flat energy rate that is close to the whole story.
For a demand-billed business it is not, for two reasons.
First, it covers only the supply half. The delivery half, including the distribution demand charge, is identical under every offer.
Second, commercial supply offers are often structured, not flat. One offer quotes an all-in price per kWh with capacity and transmission included. Another quotes a lower energy price and passes capacity and transmission through at cost. The second looks cheaper per kWh and may or may not be, depending on your peak contribution.
Two supply offers for the same site
1.2 million kWh a year, peak load contribution of 400 kW.
- Offer A, all-in fixed price7.9¢ / kWh
- (Offer A, annual supply cost)$94,800
- Offer B, energy only6.6¢ / kWh
- (Offer B, energy cost)$79,200
- Offer B, capacity pass-through, 400 kW × $6.50 / kW-month × 12$31,200
- (Offer B, annual supply cost)$110,400
Offer B costs more despite the lower headline price$15,600
Cut the peak load contribution to 250 kW and Offer B falls to $98,700 — still above Offer A. At a contribution below about 200 kW, Offer B wins. The better offer depends on the site's peak, not on the cents per kWh. Figures illustrative.
That is the practical reason to read the supply contract as carefully as the tariff. A pass-through structure rewards a site that controls its peak and penalizes one that does not.
Consolidated and dual billing
The two halves can arrive in two ways.
Consolidated billing puts both on one statement, usually sent by the utility or, in Texas's competitive areas, by the retail provider. It is convenient, and it is where the confusion starts, because the supplier's lines and the utility's lines sit on one page under one total.
Dual billing sends two statements. It is more paperwork and easier to audit, because each document belongs to one party.
Either way, the lines themselves are the same. The first step in reading an industrial bill is to mark each one as supply or delivery before doing anything else.
What to check in a supply contract
- Which costs are fixed and which pass through. Energy, capacity, transmission, ancillary services and any line loss factor, one by one.
- The measure behind each pass-through. A capacity or transmission line priced on your peak contribution changes with your behavior on a few hours a year.
- The term against the capacity year. A contract that ends partway through a capacity or transmission year can leave the tag you set last summer on the next supplier's price.
- Volume bands. Some fixed-price contracts assume a consumption range and reprice use outside it.
- Who bills, and on which document. Consolidated or dual, and which party answers for which line.
What shopping cannot fix
Changing supplier can lower the price of energy and restructure how capacity is billed. It cannot touch the distribution demand charge, the meter, the multiplier, the power factor clause or the riders. Those belong to the utility's tariff, and the only way to change what they cost is to change the determinants they measure.
That is why a supply contract and a peak reduction project are not alternatives. The first prices the kilowatt-hours. The second shrinks the kilowatts that both halves of the bill are built on. The riders that sit on top of both are covered in riders and surcharges.
