Archive for November, 2013

Ofgem has added to the political and media pressure on the energy industry by rejecting business plans from five of the six companies running the UK’s electricity distribution network for not providing consumers with value for money.

The only plan to pass, that of Western Power Distribution which owns and operates the distribution network in south Wales, the Midlands and the South West of England, will see a cut of 11.6% in the distribution element of electricity costs over the period 2015-23.

Distribution costs account for around 19% of the average household electricity bill, although the amount varies by region to reflect the cost of distributing energy to different parts of the country.

The other five distribution companies will have to re-submit their plans next year, demonstrating further cost reductions.

In 2007 these non-energy charges accounted for around 25% of total electricity costs; that proportion is now nearer 40%, so any reduction, however small, is to be welcomed.

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Ofgem announced last week that it has been granted new powers to crack down on rogue energy brokers who missell energy to businesses.

Under the Business Protection from Misleading Marketing Regulations, Ofgem can now take action against misleading marketing and advertising. The new powers follow a survey that found around one-third of small businesses did not believe brokers had been upfront about the costs of their services.

According to an Ofgem spokesman, “Getting help from a broker can assist in keeping bills down, but business consumers need to feel confident that they know – and get – what they’re paying their broker for”.

Ofgem also expects to release a new energy broker code of conduct for consultation in December, setting out how they should behave in a fair and transparent way in order to improve business confidence.

The code is likely to be based upon existing voluntary codes from the Association of Cost Management Consultants and Utilities Intermediaries Association), which regulate the practices and encourage transparency among their members.

Questions for your energy broker

In the meantime, a few key questions can quickly determine the transparency and competence of your current or prospective energy broker:

  • Are they fully independent of all suppliers, or do they represent an individual supplier or only part of the market?
  • How do they make money? No energy broker/switching service is truly free, all brokers, consultants or switching websites receive payment of some kind, usually a supplier-paid commission or fixed fee so make sure you know how you’re being charged.
  • Are they an energy expert, or do they also provide for instance telecoms or insurance services? If so, do they have the technical energy market expertise needed to advise on the correct time to go to market, avoiding energy market price spikes, and understand the increasingly complex fixed and flexible products now available?
  • What other services and value do they provide? eg invoice validation, consumption monitoring, energy efficiency advice

As Energy & Carbon Management is all too aware, energy companies have been known to make expensive mistakes, and according to a new survey they could be overcharging households £650 million a year, possibly more.

Around one-third of those surveyed by Consumer Intelligence/Keep Me Posted found a mistake in their bill, with 28% overcharged an average £121.

The potential downside of online billing was also highlighted, with those receiving paper bills more likely to spot errors than those with online only billing.

What to do?

The obvious answer is to check your bills, but for businesses with multiple sites and supplies this can be a laborious and difficult process, particularly with the plethora of non-energy costs and taxes which may not be clearly explained or transparent.

The potential for errors in distribution, transmission, capacity and other charges, not to mention actual v. billed consumption, is always there, so having a process in place to check invoices is essential. As one example, E&CM’s invoice validation is a 35-point check on every invoice which highlights any suspected problems and resolves them directly with the supplier.

Included as part of an energy procurement service such a service is a cost-effective means of ensuring you only pay what is due.

Identify past mistakes: forensic audit

If your energy invoices haven’t been checked recently it’s also worth conducting a forensic audit of historic bills to ensure you’ve been charged correctly, particularly for hidden costs such as distribution and transmission.

If mistakes are found then you can usually recover any overpayments going back up to 6 years, so it’s well worth doing, particularly under a no refund-no fee model.

Energy & Carbon Management were asked to conduct an historic energy audit and tariff optimisation by a London-based not-for profit organisation to ensure that they hadn’t been over-charged.

A detailed analysis of current and past invoices and consumption levels quickly identified a problem with their capacity availability charge, the monthly maximum demand agreed between the client and the regional distribution company (charged through the supplier).

The client’s two supplies had a combined capacity availability set at 300kVA, yet the supplier was charging them on the basis of 300kVA for each supply – and had been since 2009.

E&CM quickly entered into negotiation with the distribution and supply companies to gain a refund of over £15,200 for four years’ worth of overcharges.

In addition, the client will benefit from an on-going saving of £300 per month (£3,600 a year) as their monthly capacity charge was halved.

An historic audit and optimisation is a quick but important way to ensure that you’re only paying what is due; as this organisation found out, it’s not unknown for energy suppliers to make expensive mistakes.

What is Capacity Availability?

Capacity availability is the figure representing the maximum amount of electricity that can be used at any one time at a supply location. On electricity invoices it is sometimes referred to as Availability, Capacity or kVA.

This fee is set and charged by the local Distribution Network Operator (DNO), not the energy supplier. It also covers investment and maintenance of the electricity supply.

Customers pay a fee (per unit) according to the agreed capacity for the site. In theory, maximum demand should not exceed the agreed capacity at any time. The maximum demand is the point in a day with the highest energy usage. On the invoice only the point of highest energy usage in the month is recorded.

If your actual maximum demand is significantly lower than the capacity level there is an opportunity to reduce the capacity and therefore your costs. Equally, if demand exceeds capacity you will likely be paying penalty charges and should increase the capacity level – or preferably implement an energy savings programme.