Most businesses evaluate energy contracts by comparing cents per kilowatt-hour across retailers. This narrow focus overlooks the contractual terms, service obligations, and risk allocation mechanisms that determine your true energy costs over the contract term.
A contract offering 18 cents per kWh with restrictive exit provisions and poor service standards can cost more than a 20 cents per kWh contract with flexibility and strong retailer obligations. Here’s how to evaluate energy procurement beyond unit pricing.
Total cost of ownership encompasses all expenses associated with energy procurement over the contract lifecycle. This includes direct costs like unit rates and network charges, but also costs from inflexible terms, poor service quality, and unfavourable risk allocation.
Commercial and industrial energy contracts typically lock businesses into 1-5 year agreements. During this period, your operational requirements may change, wholesale markets fluctuate, and service issues arise. The contract terms governing these scenarios often have greater financial impact than the initial unit rate.
A contract offering 18 cents per kWh with substantial exit fees and poor service standards can cost more than a 20 cents per kWh contract with flexibility and strong retailer obligations. The difference becomes apparent when circumstances change – business expansion, site closures, or the need to switch retailers due to service failures.
Our energy specialists regularly see businesses pay more overall with contracts that looked cheapest on paper. The difference lies in the fine print.
Contract duration directly impacts your risk exposure and flexibility. Shorter terms offer the ability to capitalise on falling wholesale prices, while longer contracts provide price certainty when markets are rising.
For franchise networks and multi-site operations, 2-4 year contracts typically align best with business planning cycles. This duration balances price stability with reasonable flexibility for operational changes. Shorter 12-18 month terms rarely suit commercial operations due to increased administrative burden and limited volume discounts.
Exit provisions determine your ability to terminate early if circumstances change. Commercial contracts commonly include exit fees ranging from several hundred to tens of thousands of dollars, depending on remaining contract duration and agreed volumes. Some contracts calculate exit fees as the difference between your contracted rate and current wholesale prices, multiplied by remaining consumption.
Best for: Businesses anticipating significant operational changes, or during falling wholesale markets
Risk: Higher administrative costs, limited volume discounts, more frequent renegotiation
Best for: Established operations seeking balance between flexibility and price certainty
Risk: Moderate exposure to market changes, reasonable exit provisions typically available
Best for: Large energy users in rising markets, operations requiring long-term budget certainty
Risk: Limited flexibility, potentially locked into higher rates if markets fall, substantial exit fees
Contract term suitability depends on your specific consumption patterns, risk tolerance, and operational requirements.
Service quality directly impacts operational continuity. Poor billing accuracy creates administrative burden, while delayed responses to meter faults or connection issues can halt operations.
Strong contracts specify retailer obligations for billing accuracy, dispute resolution timeframes, meter maintenance, and account management responsiveness. These provisions become critical when issues arise. A contract might specify the retailer must resolve billing discrepancies within 10 business days, or provide dedicated account management for sites above certain consumption thresholds.
The contrast becomes stark when problems occur. Retailers with weak service obligations can leave billing disputes unresolved for months, requiring you to divert resources to chase resolution. This administrative cost isn’t reflected in the unit rate.
Our brokerage service includes evaluating retailer service track records and negotiating stronger service commitments into contracts. We’ve seen the operational impact when service standards aren’t contractually enforced.
Energy contracts allocate various commercial risks between retailer and customer. Understanding who bears which risks determines your cost stability and exposure to market changes.
Network charge pass-through clauses allow retailers to adjust your rates when distributors change network tariffs. These typically occur 1 July annually and can substantially impact costs. The Australian Energy Regulator approves network pricing annually, with changes varying significantly by distributor and jurisdiction. Some contracts cap network pass-through adjustments, while others provide unlimited pass-through rights.
Environmental scheme costs similarly vary as government policy changes. The NSW Energy Savings Scheme, Victorian Energy Upgrades, and similar programs create retailer obligations that flow through to customer charges. These scheme costs change annually based on state government policy settings and scheme obligation percentages. Contracts should specify how these adjustments occur and whether any limits apply.
Network charge changes: Vary significantly by distributor; recent years have seen increases ranging from modest to substantial
Wholesale price exposure: Highly volatile; spot prices can spike dramatically during supply constraints
Environmental schemes: Change annually based on state government policy settings
Metering cost increases: Varies by distributor policy and meter type
Regulatory fee changes: Usually minimal annual variation
Market operation costs: Relatively stable year-to-year
Impact assessment based on industry experience and recent market data. Actual risk exposure varies significantly by jurisdiction, contract structure and market conditions. See AER determinations for specific network cost changes in your distribution area.
Payment provisions affect cash flow and working capital. Commercial contracts commonly require payment within 14-21 days of invoice date, though specific terms vary by retailer and are subject to negotiation based on customer credit profile.
Security deposits or bank guarantees are rarely required for established businesses with good payment history. Retailers may request security only where credit concerns exist, such as new businesses without trading history, companies with recorded defaults, or operations in financial difficulty. When required, security amounts are negotiated individually rather than following standard formulas.
Small customers (using under 100 MWh annually) have regulatory protections under the National Energy Retail Rules, which cap security deposits at 37.5% of estimated annual bills. Commercial and industrial customers above this threshold negotiate security requirements directly with retailers, with amounts and conditions varying significantly based on creditworthiness and consumption levels.
Late payment fees and interest charges add cost if your business experiences cash flow constraints. These vary by retailer but commonly range from modest fixed fees per late invoice plus interest at commercial rates. For businesses managing multiple sites, these fees accumulate quickly if payment processes aren’t robust.
Access to granular meter data enables informed energy management. Contracts should specify your rights to interval data, the format and frequency of data provision, and any charges for data access.
Many businesses discover their contract provides only monthly summary data rather than the 30-minute interval data needed for detailed consumption analysis. This limitation prevents identifying specific operational inefficiencies or validating billing accuracy.
Billing transparency provisions determine how clearly your invoice breaks down various charges. Strong contracts require itemised billing showing energy charges, network costs, environmental charges, and metering fees separately. This transparency enables you to validate charges and identify cost-saving opportunities.
Some retailers provide online portals with real-time consumption monitoring and customisable reporting. While not always contractually guaranteed, these digital tools significantly enhance your ability to manage energy costs proactively.
Dispute resolution mechanisms determine how conflicts get resolved and how quickly. Standard contracts reference the relevant energy ombudsman schemes, but strong contracts also include internal escalation processes and timeframes.
A well-structured dispute resolution clause might specify that billing disputes must be escalated to senior account management within 5 business days, with written response required within 10 business days, before external ombudsman involvement.
Contract variation provisions protect against unilateral changes. Under Australian energy regulations, retailers must provide notice of price changes, but contract terms can strengthen these protections. Some contracts limit price variations to specific dates or require mutual agreement for changes beyond regulatory pass-throughs.
Effective energy procurement requires comparing contracts across multiple dimensions simultaneously. Most businesses lack the time and specialist knowledge to evaluate these complex contractual provisions while also running their operations.
Professional evaluation involves calculating base annual costs, then modelling scenarios including early termination, operational changes requiring contract variations, and market movements affecting pass-through charges. This scenario analysis reveals true cost exposure under different circumstances – work that requires both market knowledge and familiarity with retailer-specific terms.
Retailer service reputation matters as much as contractual service obligations. Industry experience, customer references, and track record managing similar operations all indicate likely service quality. A contract with strong service provisions means little if the retailer lacks operational capability to deliver.
Our team handles this entire evaluation process for clients. Our procurement service includes detailed contract analysis, scenario modelling, and negotiation support across multiple retailers to ensure you’re considering total cost of ownership, not just headline rates. We bring market knowledge and retailer relationships that individual businesses can’t access on their own.
Energy contracts contain complex legal and commercial provisions that require specialist knowledge to evaluate effectively. Most businesses lack internal resources to analyse contract terms comprehensively while also negotiating competitively across multiple retailers.
Professional energy brokers bring market knowledge, retailer relationships, and contract negotiation expertise. We understand standard market terms versus provisions that can be negotiated, and which retailers offer genuine flexibility versus those with inflexible templates.
The value proposition extends beyond securing competitive rates. Strong brokerage support includes identifying unfavourable risk allocation, negotiating improved service commitments, and structuring contract terms that align with your operational requirements. These improvements often deliver greater long-term value than modest reductions in unit rates.
Watt Utilities has worked with commercial and industrial clients since 2006, negotiating thousands of energy contracts across diverse industries. Our approach prioritises total cost of ownership over headline rates, ensuring you’re making procurement decisions with full visibility of contractual implications.
Our energy specialists help businesses assess energy offers across all cost dimensions including contract terms, service quality, and risk allocation. Get a comprehensive contract analysis that goes beyond unit pricing.
Get Expert Contract Analysis Disclaimer
This article provides general guidance on energy contract evaluation. Contract terms vary significantly between retailers and are subject to regulatory change. For specific contract advice tailored to your business, contact our team.
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