Pass-through clauses: what a "fixed" price does not actually fix

Why pass-throughs exist

A retail supply price is assembled from several components: wholesale energy, capacity, transmission, ancillary services, losses, renewable compliance obligations and the supplier's own margin. Each behaves differently.

Some are knowable in advance and can be fixed. Others are set by an ISO or a regulator, can change mid-term, and are outside the supplier's control. Rather than price that uncertainty into a premium, many contracts pass those components through as they occur.

That is a legitimate structure. The problem is not its existence, it is the lack of disclosure.

What is commonly passed through

Practice varies substantially between suppliers and markets. Components frequently handled as pass-throughs include capacity charges, transmission charges, ancillary services, losses, renewable portfolio compliance costs, and any newly imposed tax or regulatory charge.

Some suppliers fix most of these. Some fix almost none. Two contracts with identical headline rates can therefore produce materially different total costs, and the one with the lower headline rate is frequently the one passing more through.

Why this makes quotes incomparable

If supplier A quotes a lower rate than supplier B, the useful question is not which number is smaller. It is what each number includes.

A quote that fixes fewer components will generally look better on paper, because the cost of the unfixed components has not been priced in — it has been deferred onto the customer. Comparing the two headline rates directly rewards the supplier who disclosed less.

This is why a serious comparison normalises offers across every charge component before ranking anything, and why an offer that does not state its pass-throughs is treated as non-conforming rather than simply scored lower.

Questions to ask about any quote

• Which specific components are fixed for the term, and which are passed through?
• For each pass-through, what is the current level and how is it calculated?
• Under what circumstances can a fixed component be repriced?
• What happens if a new regulatory charge is introduced mid-term?
• What are the bandwidth or swing terms if consumption differs from contracted volume?
• What are the termination terms, and what is the calculation if we exit early?

A supplier who answers these clearly is easier to work with than one whose rate is slightly lower. An unwillingness to answer them is itself the answer.

Common questions

What is a pass-through charge in an electricity contract?

A cost component the supplier charges through to the customer as it occurs, rather than fixing it for the term. Capacity, transmission, ancillary services and regulatory charges are commonly handled this way.

Why do two electricity quotes with the same rate cost different amounts?

Because they fix different components. A quote that passes more costs through will show a lower headline rate while deferring those costs onto the customer. Comparing headline rates alone rewards the less complete quote.

Is a fully fixed electricity contract available?

Some suppliers fix more components than others, and more complete fixing generally carries a higher premium. Whether a genuinely all-inclusive fixed price is available depends on the market and the supplier, and it should be confirmed in writing rather than assumed.

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