Jun 13, 2014

Active Energy: A Guide to the Electricity Market and Its Pricing System

As a business owner, it’s important for you to know and understand all aspects of your business – all direct and indirect costs and everything that affects your company’s bottom line.   Energy costs make up a significant portion of your overhead and directly affect profit margins.  As a result, your business’ energy costs are one of the items on the list that you should intimately know.  That’s especially the case as the cost of energy keeps increasing.

At Active Energy, we’ve been offering energy solutions to businesses in Ontario, and Quebec since 2005.  We are a natural gas and electricity supplier, which means that we buy energy futures for our customers.  As a result of our nearly ten years in the industry, as well as the deep experience of our Business Services team, we have an intimate knowledge of the natural gas and electricity markets, knowledge which not only allows us to build the best possible energy pricing structures for our customers, but also allows us to explain the rationale behind our pricing structures.  Additionally, we serve as an ongoing energy consultant for our customers, offering an array of energy management tools like hedging strategies and risk management analysis. 

The electricity market is one that can be particularly complicated when it comes to pricing, and it’s one that we really seek to describe to both our new and existing customers.  Broadly speaking, energy markets are continually influx.  Prices on energy commodities, such as natural gas and electricity, change every second based on supply and demand, and these price changes eventually reach you, the consumer. 

The electricity market functions on a more granular level compared to other energy markets.  More specifically, electricity prices are calculated every five minutes based on the level of supply and demand.  Naturally, prices will rise if the demand or, what’s called in industry parlance a “net system load shape”, is above the level of supply; and on the other end, electrical prices will fall if the demand is lower than the calculated level of supply.  Once again, these ratios are calculated every five minutes and prices change accordingly, which, in turn, has created the system of on-peak and off-peak hours in the market.

The unfortunate reality is that for residences and small businesses in Canada, these customers pay time-of-use electricity rates, meaning that their electricity bills are directly influenced by the dynamic five-minute price evaluation conducted by their utility company. 

That’s a mighty large variable cost that small businesses in Canada have to face, especially when trying to budget energy costs.  That’s one of the reasons why we at Active Energy offer multiple year fixed rate plans on electricity for our customers.  When a small business approaches us, we closely evaluate their business’ energy needs and we offer a flat electricity rate for the business that will remain exactly the same for the term of the agreement.  Our customers no longer have to worry about doing business during ‘peak hours’ or how to budget a highly fluctuating electricity bill – their electrical costs will be predictable, easily forecasted and far more in line with the requirements of a business.
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