Retail electricity contracts

The short version

A retail electricity contract is the agreement between a large C&I customer and a competitive retail energy supplier. Unlike residential contracts, large C&I contracts are negotiable — and the terms negotiated (or not negotiated) can mean hundreds of thousands of dollars annually for large buyers. Understanding what is in your contract is the prerequisite to getting a good one.

Anatomy of a retail electricity price

Every retail electricity price contains four main components. The energy charge covers the wholesale market cost of power plus the retailer's hedge margin. The capacity charge covers your share of regional capacity market costs, allocated based on your coincident peak demand tag. Pass-throughs include transmission, distribution, ancillary services, and regulatory charges — costs the retailer passes at cost rather than fixing. The retailer adder is the margin covering the retailer's operating costs, credit risk premium, and profit.

Fixed-price contracts bundle all four at a locked rate. Variable and indexed contracts pass through market components at cost and fix only the adder and sometimes the energy component. Understanding which bucket each cost falls into — fixed vs. floating — determines your actual exposure under each proposal.

Key contract terms to negotiate

Termination provisions define what happens if you need to exit early. Mark-to-market termination fees can be substantial in volatile markets. Some contracts cap fees or allow termination for cause; uncapped fees tied to market value are high-risk in volatile environments. Load swing provisions specify how the retailer handles consumption above or below contracted volume — most contracts allow ±10–20% at the contract price, with a penalty rate on excess. Facilities with variable production should negotiate wider swing bands. Capacity tag methodology governs how the retailer calculates your coincident peak demand for capacity cost allocation — buyers who actively manage CP peaks should negotiate credit for demonstrated reductions. Auto-renewal clauses are a common trap: many contracts automatically renew at rates unfavorable to the buyer unless notice is provided 60–90 days prior to expiry.

Running a competitive procurement process

Request itemized proposals — broken into energy, capacity, transmission, distribution, ancillary services, and adder — not just headline prices. Build a consistent comparison model using the same load profile and assumptions. Evaluate counterparty credit quality; the retailer must perform for the full contract term. Ask for references from comparable customers. In competitive markets, getting three or more proposals consistently delivers better outcomes than bilateral negotiation with a single preferred supplier. For contracts above $1M annually, engaging an independent energy advisor to run the procurement process typically delivers savings that far exceed the advisory fee.