Pass-through charges explained (Commercial energy contracts)

Pass-through charges in commercial energy contracts are costs your retailer collects on your behalf and passes through at cost, usually because they are set by regulated networks, metering providers, market bodies, or government schemes. They can change during your contract term, which means your total bill can move even when your base energy rate looks fixed.

Why pass-throughs exist in Australian business energy contracts

Most business energy bills include more than the “energy” component. The retailer might set your usage rate (the commodity price), but other parts of the bill are driven by external parties, especially the electricity distributor and metering provider. Retailers commonly treat these as pass-through items because they do not control them and cannot reliably lock them in for the whole contract term.

In practice, the risk is not that pass-throughs are automatically “bad”, it is that they can be unclear, poorly defined, or broader than you expect. The commercial outcome depends on what your contract says can be passed through, how it is calculated, and how often it can change.

Common types of pass through electricity charges (with simple explanations)

Retailers use different labels, but most pass-through electricity charges fall into the categories below.

Network charges

What they are: Charges for transporting electricity from the grid to your premises using poles, wires, substations, and related infrastructure.

Who sets them: Your local distribution network service provider and, for transmission components, the transmission network. Network prices are regulated and typically updated on a schedule, often aligned to the financial year.

Why they matter: Network charges can be a large share of a commercial bill. They also interact with your tariff type, especially if you are on time-of-use or demand-based network tariffs.

Simple example: A warehouse signs a 24-month contract with a fixed usage rate. On 1 July, the distributor’s network tariffs change. If network charges are passed through, the warehouse’s per kWh network component and daily network component can rise or fall regardless of the fixed energy rate.

Metering fees

What they are: Charges related to the meter at your site, including metering provision, data services, and in some cases special reads or configuration.

Who sets them: The metering coordinator or metering provider (which may be arranged by the retailer, depending on the market and meter type).

Why they matter: Metering charges are often small compared to network costs, but they can add up across multi-site portfolios and can change if your metering arrangement changes.

Simple example: A retailer arranges an interval meter upgrade as part of a new deal. The contract includes metering charges as a pass-through item. The site sees a new monthly metering fee appear, but the total bill still goes down because the tariff and commodity rates are sharper. The key is knowing this upfront.

Market and settlement fees

What they are: Charges associated with operating the electricity market and settling energy transactions. Depending on the contract and customer class, these may be bundled or itemised.

Who sets them: Typically market bodies and service providers in the electricity supply chain.

Simple example: A contract states that certain “market fees and charges” are passed through as incurred. If those costs change due to market rule changes or updated fee schedules, they can flow into your bill.

Environmental scheme charges

What they are: Costs linked to government and jurisdictional schemes, for example renewable certificate obligations and other environmental compliance costs.

Who sets them: Government policy settings and certificate market prices.

Simple example: A business signs a supply agreement where environmental charges are passed through. If certificate prices rise, the retailer may pass on the increased scheme cost according to the contract definition.

Loss factors and related adjustments

What they are: Adjustments that account for electrical losses as power flows through the network. These factors can influence the effective amount of energy charged for settlement and billing.

Why they matter: If your contract structure or tariff references loss factors as pass-through, changes to those factors can shift costs without any change in your actual consumption.

What pass-through charges look like in a commercial contract

In many commercial agreements, pass-throughs appear in a “Non-energy charges” section or a pricing schedule. Wording varies, but you will usually see one of these approaches:

All-inclusive pricing: The retailer bundles network, metering and other non-energy costs into a single cents per kWh and daily charge. This can improve budgeting certainty, but you should confirm exactly what is included and what triggers a price change.
Partially inclusive pricing: The retailer fixes the commodity component but passes through defined items such as network charges and metering fees.
Broad pass-through clause: The contract allows the retailer to pass through a wide set of costs, sometimes described as any cost “incurred in supplying energy”. This can create more bill volatility and disputes, so it is worth tightening the definitions before signing.

Why a “fixed rate” can still change the bill

A common point of confusion is that a quote may advertise a fixed cents per kWh rate, but your total invoice still changes each month. That is normal because:

Your usage changes, especially if you have seasonal heating or cooling loads.
Demand charges can vary if your maximum demand changes.
Network charges and metering fees can change if they are pass-through items.

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So the practical question is not “Will my bill change?”, it is “Which parts are fixed, which parts can change, and what drives those changes?”

Pass-throughs vs demand charges, are they the same thing?

Not necessarily. Demand charges are a tariff component that applies when you are billed based on your peak demand (kW or kVA) over a period. A demand charge can be part of network pricing, retail pricing, or both, and it may be bundled or passed through depending on how the contract is written.

If you operate equipment that creates short spikes, demand can dominate total cost. In that scenario, understanding how demand is measured and billed can be just as important as understanding pass-through items.

Practical examples: How pass-through charges can affect two businesses

Example 1: Single site café on a simple tariff

Contract type: 12-month market contract, fixed commodity rate.
Pass-throughs: Network charges and metering fees.
What happens: On 1 July, network tariffs change. The café’s daily network component rises slightly. The commodity rate stays the same, but the monthly bill increases modestly.
What to do: Ask the retailer for an estimate of total bill impact using your historical usage and the new network tariff, then assess whether a different network tariff is available for your operating hours.

Example 2: Multi-site cold storage with interval metering

Contract type: 36-month agreement with defined pass-throughs.
Pass-throughs: Network tariff charges (including demand components) and metering charges.
What happens: One site’s maximum demand increases due to a new compressor schedule. Network demand charges rise sharply, even though the commodity energy rate is competitive.
What to do: Review interval data to identify spikes, then implement operational changes (stagger start-up loads) and review whether the site is on the most cost-reflective network tariff.

Questions to ask before you sign a contract with pass-throughs

Use this checklist to reduce surprises and improve comparability between quotes:

Exactly which items are pass-through? Ask for a written list, not a general statement.
Are network charges passed through at cost, or can the retailer add margin? Confirm the wording.
How often can pass-throughs change? For example, at any time, on 1 July, or only when the network changes its tariffs.
How will changes be communicated? Notice periods and invoice line item transparency matter for budgeting.
What network tariff are you being priced on? A quote is only comparable if it assumes the same tariff and meter configuration.
What metering configuration is assumed? Basic meter, interval meter, smart meter, and any special reads or communications services.
Are there any additional fees not in the pass-through list? For example, special meter reads, disconnection, reconnection, paper billing, or late fees.

How to reduce pass-through risk (without overpaying)

There is no single best approach for every business. The best option depends on your risk tolerance and how predictable your load is. Common strategies include:

Ask for “fully bundled” pricing as a comparison point

Even if you do not choose it, a bundled offer helps you understand the value of shifting pass-through risk to the retailer. This can be useful for budgeting-heavy organisations.

Tighten the contract definition of pass-through items

Where possible, avoid vague clauses that allow anything to be passed through. A clearer, narrower definition reduces disputes and makes it easier to compare offers.

Check whether your network tariff fits your operating profile

Many businesses overpay because their network tariff does not match how they use electricity. Tariff reassignment and demand management can reduce the network component, which is often the largest pass-through element.

Use interval data to avoid surprise demand outcomes

If your site has interval metering, reviewing your load profile can highlight short spikes that drive demand charges. Simple operational changes can reduce those peaks without reducing production.

Australian regulatory context: Who controls what

For most grid-connected business customers in Australia, retailers sell you energy and send the bill, while networks set regulated network tariffs for delivering electricity to your site. In many jurisdictions, small business customers also have specific protections relating to information disclosure and how changes are communicated, which is one reason it is worth asking for clear, written schedules and definitions before accepting a contract.

If your business operates in an embedded network (for example, a shopping centre or business park), some charges may be structured differently. You should request a clear breakdown of energy, network, and metering components from the embedded network operator or retailer.

How Zembl helps businesses compare contracts with pass-through charges

If you are comparing quotes and you are not sure whether you are looking at like-for-like pricing, Zembl can help. We can review your bills and tariff details, request offers from a panel of retailers, and present a clear comparison that highlights which costs are fixed and which are pass-throughs.

Frequently asked questions

Are pass-through charges always extra on top of the quoted rate?

Not always. Some quotes are bundled and include network and metering inside a single price. Others fix only the commodity component and pass through defined non-energy items. The only safe approach is to confirm in writing what the quote includes.

Can a retailer change pass-through charges whenever they want?

A retailer should only change charges in line with the contract terms and the underlying third-party charges. If the contract allows broad adjustments, you may have more exposure. If pass-through items are narrowly defined, changes should align to those definitions and supporting evidence (for example, published network tariff changes).

What is the biggest pass-through cost for most businesses?

For electricity, network charges are commonly the largest non-energy cost, especially where demand-based network tariffs apply. Metering fees are usually smaller but still important across multi-site portfolios.

How do I compare two offers if one includes pass-throughs and one is bundled?

Ask both retailers (or your adviser) to model total annual cost using your historical usage and the same network tariff assumptions. This turns the comparison into dollars, not contract language.