Energy procurement comes with its own language. This glossary covers the terms you'll encounter most often when reviewing a utility bill, reading a supply contract, or talking to a broker. Definitions are written for commercial energy buyers, not grid engineers.
A
- Ancillary Services
- Services required to maintain grid reliability beyond basic energy supply — including frequency regulation, voltage support, and spinning reserves. These are often passed through to commercial buyers as separate line items on the invoice, particularly under index or pass-through supply contracts.
- Automatic Renewal
- A contract clause that rolls your supply contract over for an additional term (sometimes at a different rate) if you don't provide notice of non-renewal within a specified window. Windows are often 30–90 days before contract expiration. Missing this window can result in paying above-market default rates.
B
- Bandwidth / Swing Provision
- A clause in many fixed-price contracts that guarantees the contract rate only if your usage stays within a defined range of your baseline volume (e.g., ±10%). Usage outside the band is typically priced at market rates. Spikes in consumption during a market price event can make these provisions expensive.
- Baseload
- The minimum level of demand on the grid (or in your facility) that must be met at all times. In energy procurement, "baseload" often refers to the steady, predictable portion of your load as opposed to variable or peaking demand.
- Basis
- The difference between a reference market price (like Henry Hub for gas) and the actual delivered price at your location. Basis reflects transportation costs, congestion, and local supply/demand conditions. If you're in a gas market with limited pipeline capacity, your basis can be significantly higher than the national index.
C
- Capacity Charge
- A charge that recovers the cost of maintaining generation and transmission capacity sufficient to meet peak grid demand. Capacity charges are set through forward auctions in organized wholesale markets (like PJM's capacity market) and are typically passed through to commercial buyers. They can be significant — often 15–30% of total energy spend for large C&I accounts.
- Capacity Tag (Peak Load Contribution / PLC)
- In PJM and similar markets, your "capacity tag" is your facility's measured demand during specific peak hours of the prior summer. This tag determines your share of capacity charges for the following year. Managing your load during peak alert hours can meaningfully reduce your capacity tag — and your bills — for the next 12 months.
- Coincident Peak (CP)
- The demand your facility contributed during the grid's system-wide peak hours. Used in several markets (including PJM) to allocate capacity costs. The "5 Coincident Peak" (5CP) method identifies the 5 highest-demand hours of summer to set capacity obligations for the following year.
- Commodity
- In energy, the raw supply of electricity or natural gas — as distinct from the delivery (wires and pipes). In deregulated markets, you choose your commodity supplier independently of your utility, which handles delivery.
- Congestion
- Occurs when transmission constraints prevent cheaper power from reaching areas of high demand, causing locational price differences. Buyers in congested areas often pay more for energy even when regional wholesale prices are low.
D
- Day-Ahead Market
- A forward market where electricity is bought and sold for delivery the following day. Prices are set through an auction process the day before delivery. Most index supply contracts are priced against day-ahead market rates.
- Default Rate
- The supply rate you pay if you haven't chosen a competitive supplier. Set by the utility or state regulator, default rates are almost always higher than competitively procured rates. Buyers who miss contract renewals often roll onto default rates without realizing it.
- Demand Charge
- A charge based on your highest single-interval (usually 15-minute) electricity consumption during a billing period, measured in kilowatts (kW). Demand charges recover the cost of infrastructure needed to serve your peak load. They typically represent 30–50% of a commercial electric bill and are billed separately from energy (kWh) charges.
- Demand Response
- A program through which commercial and industrial customers reduce or shift electricity use during peak grid periods in exchange for bill credits or payments. Participants typically commit to reducing demand by a defined amount when called upon by the utility or grid operator.
- Deregulation
- The restructuring of electricity and natural gas markets to allow competition among suppliers. In deregulated markets, customers can choose their energy supplier rather than buying from the utility at regulated rates. Not all US states are deregulated — it varies by state and market.
E
- Energy Charge
- The portion of your electric bill that reflects actual electricity consumption, measured in kilowatt-hours (kWh). Distinct from demand charges (which are based on peak rate of consumption) and delivery charges (which are regulated and fixed).
- ERCOT
- The Electric Reliability Council of Texas. The independent system operator managing most of Texas's power grid. ERCOT is notable for being largely separate from the broader US grid and for its energy-only capacity market structure (no separate capacity market like PJM).
F
- Fixed Price
- A supply contract structure where the energy commodity rate is locked for the entire contract term, regardless of market movements. The buyer pays a risk premium for this certainty — the supplier hedges your load in the forward market and adds a margin.
- Forward Curve
- The current market prices for energy delivery at future dates. Brokers and suppliers use the forward curve to price fixed-rate contracts. If the curve is "in contango" (future prices higher than spot), fixing a long-term rate is comparatively attractive.
- Full Requirements Contract
- A supply contract where the supplier agrees to provide all of your electricity needs, regardless of how your consumption varies. The supplier takes on the volume risk. Most commercial supply contracts are full requirements arrangements.
G
- Green Tariff
- A utility-administered program allowing commercial customers to purchase electricity sourced from renewable generation, often at a premium. Different from purchasing RECs directly — green tariffs are bundled supply products offered by the utility.
I
- Index / Floating Price
- A supply contract structure where the commodity price tracks a published market index (e.g., hourly day-ahead prices, Henry Hub for gas). No fixed premium is paid, but the buyer is fully exposed to market volatility.
- Interval Data
- 15-minute or hourly electricity consumption readings from your utility meter. Interval data reveals your actual load shape — when you use energy and how it varies. It's essential for competitive procurement and for understanding your demand charge exposure.
- ISO (Independent System Operator)
- A neutral entity that manages the transmission system and wholesale electricity markets for a region. Examples: ISO-NE (New England), NYISO (New York), PJM (Mid-Atlantic/Midwest). ISOs ensure grid reliability and administer energy, capacity, and ancillary service markets.
K
- kW (Kilowatt)
- A measure of power — the rate of electricity consumption at a specific instant. Used to measure demand (peak draw). 1 kW = 1,000 watts.
- kWh (Kilowatt-hour)
- A measure of energy — the total amount of electricity consumed over time. If you run a 1 kW load for one hour, you've consumed 1 kWh. Your energy charges are based on kWh; your demand charges are based on peak kW.
L
- Load Factor
- The ratio of your average electricity demand to your peak demand, expressed as a percentage. A load factor of 100% means your demand is perfectly flat (rare). A lower load factor means more spiky consumption. Facilities with higher load factors receive better pricing from suppliers, because the load is easier and cheaper to serve.
- LMP (Locational Marginal Price)
- The real-time cost of electricity at a specific location on the grid, set by the marginal cost of meeting demand at that node. LMP varies by location (reflecting congestion) and time (reflecting the marginal generator on the system at any given hour). Index contracts are typically priced at or near LMP.
M
- MMBtu
- Million British thermal units — the standard unit for measuring natural gas volume in commercial transactions. One MMBtu is approximately the energy content of 1,000 cubic feet (Mcf) of natural gas.
N
- Net Metering
- A billing arrangement for facilities with on-site generation (typically solar) where excess electricity exported to the grid offsets future consumption charges. Net metering policies vary significantly by state and utility.
P
- Pass-Through
- A contract provision allowing the supplier to pass certain cost components (typically capacity charges, transmission riders, or ancillary services) directly to the buyer at actual cost rather than including them in a fixed rate. Contracts with pass-throughs are "partially fixed" — they provide certainty on the commodity but exposure on the passed-through components.
- PJM
- PJM Interconnection — the largest wholesale electricity market in North America, covering 13 states and DC (PA, NJ, MD, DE, VA, WV, OH, KY, IN, IL, TN, MI, NC, and DC). PJM operates both energy and capacity markets. C&I buyers in PJM face capacity charges set by annual auctions.
R
- Ratchet Clause
- A tariff provision that bills demand charges based on the greater of (a) actual current-month peak demand or (b) a percentage (often 80–100%) of the highest peak demand in the prior 11 months. Ratchets mean that a single seasonal demand spike can elevate your bills for the entire following year.
- REC (Renewable Energy Certificate)
- A tradeable certificate representing the environmental attributes of 1 MWh of renewable electricity generation. Buyers purchase RECs to substantiate renewable energy claims without necessarily consuming renewable power directly. RECs are separate from the underlying electricity commodity.
- RFP (Request for Proposals)
- The document used to solicit competitive supply quotes from multiple energy suppliers. A well-structured RFP includes interval data, account information, desired contract terms, and product specifications. The quality of the RFP directly affects the quality of quotes received.
- RTO (Regional Transmission Organization)
- Similar to an ISO — an independent entity that manages the transmission grid and wholesale electricity markets across a region. The terms ISO and RTO are often used interchangeably. PJM, MISO, and SPP are examples of RTOs.
S
- Supplier
- A licensed entity that sells electricity or natural gas to commercial and industrial customers in deregulated markets. Suppliers compete for your load on price and contract terms. They are distinct from your utility, which handles delivery.
- Supply Rate
- The per-unit price ($/kWh for electricity, $/MMBtu for gas) charged by your supplier for the energy commodity. The supply rate is the portion of your bill that competitive procurement affects. Delivery charges, taxes, and fees are separate.
T
- Tariff
- The schedule of rates, terms, and conditions under which a utility provides service to customers. Tariffs are filed with and approved by state regulators. Your utility tariff determines your rate class, delivery charges, and demand charge structure. Understanding your tariff is essential for accurate cost analysis.
- Transmission Charge
- A regulated charge recovering the cost of the high-voltage transmission infrastructure that moves electricity from generators to local distribution systems. Typically passed through to customers on a per-kWh or per-kW basis.
U
- Utility
- The regulated entity that owns the local distribution system (the poles, wires, and pipes delivering energy to your facility). In deregulated markets, you still receive service from your utility for delivery — you only choose a different supplier for the commodity.
W
- Wholesale Market
- The market where electricity is bought and sold between generators, utilities, and large buyers at bulk prices. Retail buyers in deregulated markets access competitive pricing that reflects (or is derived from) wholesale market conditions.
Still have questions about your bill or contract?
We explain this every day. Send us your bill or contract and we'll walk through it with you — free, no obligation.
Talk to a broker