National Grid calculates Standard Offer Service rates using monthly prices in our contracts with wholesale suppliers for each 6 month period under the Fixed Price Option. We must also estimate the quantity of electricity we believe our customers receiving Standard Offer Service will need each month. This calculation is not exact and often, over the course of the Fixed Price Option period, the amount we bill our Standard Offer Service customers is different from what we ultimately pay for Standard Offer Service under our contracts. National Grid also determines the difference between the cost of purchasing RECs to comply with the state’s RES, which was described above, and the amount billed to Standard Offer Service customers for purchasing the RECs. The difference between the amount billed and the actual cost of Standard Offer Service supplied and RES compliance is measured over a year, and will show that we have either billed too much or too little as compared to our actual cost.
National Grid does the same evaluation for the administrative costs, which are also described above. We estimate what these costs are likely to be and calculate the charges that are added to the Standard Offer Service rates calculated from the prices in our contracts with wholesale suppliers. Each year, we compare the amount billed through the administrative charges and actual administrative costs to determine if we have billed too much or too little as compared to our actual costs.
National Grid does not make money or profit from Standard Offer Service. As a result, our regulator allows us to recoup any amount we have under-billed and requires us to refund any amount we have over-billed. This takes place over a 12-month period after our regulator has reviewed our comparison of Standard Offer Service billings to the costs of supplying Standard Offer Service, complying with the RES, and our administrative costs.