Understanding Electricity Losses, Deration, and UFE in Commercial Energy Supply Pricing

Supply offers can account for certain grid and settlement-related costs differently. Transmission and distribution losses, deration, and unaccounted-for energy (UFE) are three components that may affect how a proposal is priced or billed.

Whether you are an energy manager evaluating supply options for your organization or an aggregator, broker, or energy consultant supporting a customer’s procurement process, understanding these terms can help you compare proposals on a more consistent, apples-to-apples basis.

We believe customers and our broker partners deserve clarity when evaluating electricity supply options. A transparent view of pricing components can support more confident procurement conversations and better-informed decisions.

Why Delivered Energy Can Differ from Energy Purchased for the Grid

Electricity pricing can involve more than the energy recorded at a facility meter. That distinction is important whether you manage energy directly for a business or help customers evaluate supply options as a broker or consultant.

Before electricity reaches a facility, it travels through a network of transmission lines, substations, transformers, and local distribution equipment. Some electricity is lost along the way, primarily as heat. A facility meter records the electricity delivered for use, but additional energy may have been required upstream to account for losses during delivery.

That difference matters because a supplier may need to procure more energy than the amount ultimately recorded at the customer’s meter.

What Are Transmission and Distribution Losses?

Transmission and distribution (T&D) losses are the energy losses that occur as electricity moves through the power grid.

Transmission losses occur when electricity travels across high-voltage lines and through related equipment, including transformers. These losses can be influenced by distance, power flow, and grid conditions.

Distribution losses occur closer to your facility, as power moves through local utility infrastructure and is stepped down to the voltage required by your equipment.

Together, transmission and distribution losses help account for the difference between the energy introduced into the grid and the energy delivered to a customer meter.

Why Your Facility’s Voltage Level Matters

The loss factor applied to a commercial or industrial account is generally tied to:

• The electric distribution company serving the facility
• The facility’s delivery-voltage classification
• The applicable utility tariff

Common delivery-voltage classifications may include:

• Transmission
• Subtransmission
• Primary
• Secondary

Think of a water hose with multiple spray settings. The water coming out of the spigot is at the highest volume, but the petunias can’t take the same spray setting as the concrete. The spray needs to be adjusted to an appropriate level.

The nozzle acts like a substation, stepping the power of the spray down.

In general, facilities served at higher voltages may have lower loss factors because the electricity undergoes fewer voltage step-downs before reaching the meter. However, classifications, tariffs, and loss factors vary by utility. Your supplier should identify the assumptions used for your specific site.

How Loss Factors Can Affect Supply Cost

A loss factor reflects the additional energy needed to serve metered load after accounting for grid-delivery losses.

Using an illustrative energy price of $53.30 per MWh, the incremental cost associated with different loss factors would be:

The calculation is: (Energy Price x Loss Factor) – Energy Price = Incremental Loss Cost

These examples are for education only. Actual results depend on your energy price, serving utility, applicable tariff, and delivery-voltage classification.

What Is Deration?

Deration is a reduction to metered load that accounts for electricity lost as heat while moving through transmission and distribution infrastructure. It is generally reflected as a credit to retail load.

Let’s use a leaky water hose as an example.

The spigot released a gallon of water so that you could use 0.9 gallons of water in your garden.

Somewhere along the way, the hose leaked out 0.1 gallons. The 0.1 gallons leaked is deration. In this example, there is 10% deration.

Deration may vary by hour and can be higher during on-peak periods, when greater power flows can increase heating on grid equipment. Because deration is closely connected to line losses, suppliers may include it within a broader losses component or show it as a separate adjustment.

Using an illustrative energy price of $53.30 per MWh and a deration factor of 0.978:

($53.30 x 0.978) = -$1.17

In this illustration, the deration adjustment is a $1.17/MWh credit.

What is Unaccounted for Energy (UFE)?

Unaccounted for Energy, or UFE, is the difference between the electricity supplied to the grid and the electricity billed to customers.

UFE may result from factors such as:

• Unmetered energy use
• Meter inaccuracies or errors
• Energy theft
• Timing and settlement differences

UFE is generally allocated by zone based on load-ratio share and can vary by hour. While it is often not the largest component of a supply price, it remains part of the overall cost picture and should be understood when comparing proposals.

How Losses, Deration and UFE Work Together

Losses, deration and UFE are related—but they are not always handled the same way in every electricity supply offer.

Depending on the product and market, a supplier may:

• Include these components in the quoted price
• Pass them through separately
• Apply them as individual charges or credits
• Combine losses and deration into a single adjustment

The important question is not simply whether a proposal includes these items. What matters is whether all proposals treat comparable components consistently.

Look Beyond the Headline Rate

A competitive electricity offer should provide more than a rate. It should give the customer, and the advisor supporting that customer, a clear view of what is included, what may be passed through, and which utility-specific assumptions support the proposal.

Whether you are an energy manager reviewing options for your organization or an energy broker helping a customer navigate the market, comparing the full cost structure is essential. A lower headline rate may not represent a lower overall cost if losses, deration, UFE, or other market-based components are treated differently.