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07 November 2017

What you don’t know can hurt you

Businesses of all sizes are still failing to truly get to grips with the baffling complexity of energy management and the savings that a forensic approach can deliver for them.

Businesses of all sizes are still failing to truly get to grips with the baffling complexity of energy management and the savings that a forensic approach can deliver for them.

Many energy buyers tend to ignore the ‘non commodity’ elements of the bill, for example the electricity network charges, or leave them to their supplier or broker to deal with. A common misconception is that, because they are regulated, there’s nothing you can do to affect them.

However, the methodologies and mechanisms behind electricity network charges actually allow energy buyers to better understand their expenditure and to more effectively forecast and optimise their costs. It is all about knowing where to look and what to look for.

Errors within electricity network charges are commonplace. And, while the wrong arithmetic and pricing errors can be detected by bill checking, more often than not serious errors can only be uncovered through the application of technical expertise, deep regulatory knowledge and understanding along with the correct use of forensic auditing techniques.

Here is what could be at stake. At the world-renowned Addenbrookes Hospital in Cambridge, one of the biggest NHS hospital trusts in the country, we identified £1.3m in energy refunds and savings.

Our specialists analysed 554 bills and 2,636 lines of data, relating to electricity, gas and water usage across the main university hospital site and two smaller sites.

We discovered an overpayment of bills, resulting from a classification error by the network operator.

As a result of our ability to delve deep into the data, we were able to negotiate a much more cost-effective, site specific voltage classification with the trust’s electricity network operator.

In another case, an IT services company operating sites across the UK was being overcharged £700,000 – a figure we were able to uncover and which was caused by its supplier misinterpreting data that had been sent to them by a network operator.

We have carried out this type of exercise for more than half of the UK’s 30 largest energy users, as well as many FTSE 100 companies. In the past three years we’ve recovered £1.5m for three high street banks alone, along with £9.6m for the NHS. In the last two years we’ve also recovered £3.2m in overcharges for four telecoms companies.

The way in which energy infrastructure charges are calculated has changed dramatically and, as a  result, overcharging is now more prevalent than ever before, with more than one in three meters being overcharged in the past six years.

When we are called in to help our primary focus is often on non-commodity costs, such as network charges and environmental taxes. Here the devil really is in the detail.

For instance, 70 per cent of the cost recovery opportunities that we identify are available as a result of changes in regulatory policy.

And 20 per cent of those cost recovery opportunities we have found are billing errors made by third parties, such as electricity distribution companies or meter operators.

Almost 85 per cent of the recoveries we achieve for businesses and organisations are from a second or third pass audit, where our client has already had its invoices checked by an external consultant.

These are errors that cannot be typically identified by bill validation services or desktop analysis. They require detailed investigation of on-site infrastructure and it pays to dig deep.

Electricity network charges include DUoS (Distribution Use of System) and TUoS (Transmission Use of System). Whether they are visible on the invoice or bundled into the energy rates, they are paid by every energy user and they are rising in cost.

The complexity of these charges is one of the reasons why, despite the fact businesses may have robust processes in place to check their bills, large amounts of overcharging can be missed.

Take DUoS charges. They are arrived at on your bill through 14 different regional charging statements.

But that’s not all. Those statements are derived from the DCUSA (Distribution Connection and Use of System Agreement) and the Distribution Code, which in turn draw from the Electricity Distribution Licence. It’s far from customer friendly and, to make it even harder to understand, many of these documents are regularly amended.

However, the ability to access and interpret these myriad of codes and agreements unlocks knowledge and information that can highlight incorrect charges and costs and save you money.

PCMG is a world-class operating cost consultancy, based in Blackpool, Lancashire. 

By looking deeper below the surface, PCMG has recovered well over £400m for its clients to date.

Our commitment is to deliver a clean bill of financial health for all our clients – working with us will leave you safe in the knowledge that your organisation is as fit, lean and strong as it possibly can be.

We will maximise your organisation’s liquidity by applying highly specialist expertise to reduce your operating costs and improve performance in the areas of energy, telecoms, water and accounts payable.

Part of Ayming (www.ayming.com), Europe’s leading business performance consultancy. with over £1bn recovered for clients across the group in 2016 and operating in 16 global markets, we have over 30 years’ experience with audits delivered in more than 30 countries.

Visit our website at www.pcmg.co.uk or email us on enquiries@pcmg.co.uk

 

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