Last week’s blog touched on the subject of reactive power charges and that I was asked by a senior representative of ABB (www.abb.com) to attend a meeting and review one of his clients’ reactive power charges, which he suspected as being inaccurate.

As I didn’t expand on the outcome of the meeting, I thought I would do so now as it is relative to this week’s post. We soon established that he was right to be suspicious of the charges. Although there where reactive power charges that needed to be addressed, the supply company had managed to overcharge for them. This eventually led to a refund of approximately £40,000 to the customer.

The supplier had already been fined £2 million by the regulator for their failure to bill reactive power charges accurately. However, as is often the case, they were not compelled to retrospectively re-invoice any of their customers that had been overcharged, even though it would have been a simple enough process. Instead, it was left for the customers to contest the charges on an individual basis.

This occurred some years back and the company in question ceased to exist under its previous name, having long been taken over by another supplier. Cut now to the present day, we have another issue regarding reactive power charges, but in this instance the supplier has been unable to invoice the customers until recently due to, what we suspect, to be problems with the billing system. Customers are now receiving reactive power charge invoices going back several years and are being asked to make prompt payment in accordance with the agreed contract terms.

There are a number of issues that spring to mind, but the most important is: why has it taken so long for a supply company to invoice a pass-through charge? Their letter to customers doesn’t make any reference as to why it has occurred, but we have been informed that this has happened to a large number of their customers. This surely points towards a billing system error and judging from the period these charges cover, it has taken sometime to be corrected.

This then raises the point that surely the supply company was aware of the billing problem, which then leads to the question: why were they still offering contracts to customers that their billing system clearly couldn’t support? Therefore, the contracts would be erroneous because a supply company cannot offer a contract that it can’t support on its billing system. This appears to have slipped the supplier’s attention.

But here’s where it gets really unclear: if the client is not aware that they are generating reactive power charges because the supplier has not informed them by presenting accurate invoices; should they be responsible for them? After all, the option to do something about them and prevent further waste and charges has gone. Not very green, whichever way you look at it.

Being overcharged by the supplier would at least bring it to the customer’s attention. But when they are not charged for several years, then who should be responsible, the customer or the supplier?

Do all suppliers act like this? No, it’s not universal, but it really, really, really does happen.

A few years back I was invited to attend a meeting by a senior representative of ABB.  For those who don’t know, ABB is a leading power and automation technology group that specialises in products aimed at improving energy efficiency – (www.abb.com).  My involvement was to review one of his client’s reactive power charges, which he suspected as being inaccurate.

During the course of the meeting the energy manager of the organisation informed us that the entire operation was completely supplied with green energy. The reason for my being there was to discuss reactive power charges, which again for those who don’t know, is a charge applied for the wasted energy as represented by a low site power factor (PF), so it seemed somewhat ironic that his delight in being supplied with green energy was coupled with simultaneously wasting  the self same product.

Since the meeting I’ve been very much aware of how, in recent years, green energy has come to the forefront, so much so that a number of new supply companies have emerged whose raison d’être is to operate in the field of renewable energy, to differing degrees of availability.  Although there are many organisations that, quite rightly, are eager to do their part in reducing emissions, opting for a green tariff can at times be to their detriment if it means that other initiatives are ignored.

Unfortunately, it’s all about the concept of green energy and with some suppliers and consultants pushing green products, it’s difficult to see how a change in thinking can come about. Customers may see green tariffs as a way to show that their organisation operates in an ecologically responsible manner, but on its own it’s little more than buying a status without earning it.  Green energy is a rare commodity in this country and therefore, when a company decides to follow that path all other options should be investigated as well.

This, not only makes sense for businesses but the energy industry alike.  For instance the introduction of energy efficient solutions such as power factor correction (PFC) equipment to combat reactive power charges, do have a cost outlay, but they also have a cost benefit.  Installing bio filters to walk in fridges can not only reduce energy usage but give a greater shelf life to food products.   The reduction of waste and emissions are the areas that need to be concentrated on to show a green commitment.  With access to data from HH metering and dare I say it, smart meters, suppliers could inform customers of the need for investment based on usage and trend.

Organisations need responsible energy management, but supply companies need to lead the way.

Independent is a word that surfaces time and time again in the world of consultants.   It is commonly used to indicate the hosts’ impartiality between the choices of suppliers that their potential customers may opt for when a contract is agreed through them.  There can be few websites which don’t make use of the word for that very purpose.

Not so long ago a supplier informed us that we needed to increase the level of clients we placed with them.   Our response to them was, “When your prices become competitive we will do so, but until then we can’t”.  As a result, we no longer have an association with them and as we spelled out in a closing email to them, “We are not an extension of your sales force”.

As a parting gift, the supplier sent us a list of preferred brokers whom we could set up a third party agreement should we wish to place any future business.  Needless to say, we have not placed any further business with them direct or through a third party.

I did however go through the websites of the preferred brokers in question and came across the word ‘independent’ on every occasion.  One particular broker was so keen to show their impartiality, their website actually states that they have no direct or indirect contact with suppliers, which is a rare talent in itself considering that they are brokers.  My guess is that they use telekinesis, which would also make them rather unique.

The list provided by the supplier was of companies that placed an acceptable amount of business with them but, as mentioned before, the supplier was not the cheapest at the time.  We knew that and they should have known that, after all they all state on their websites that they have an association will all suppliers, therefore the question arises are they really independent?

I’m not too surprised or even upset by the consultants/brokers in question.  I am however, rather concerned that a supplier desires to associate themselves with organisations who are prepared to short change their own clients knowing that better deals are available elsewhere.   What does that say about the supplier?

Just like green energy or carbon footprint, independent is another word to view with a healthy amount of scepticism.  Saying something doesn’t mean it’s true.

Merry Christmas and a Happy New Year from everyone at EG Audit.

Why is there a rush about having a smart meter? By 2014 every commercial property in the UK should have a smart meter installed, but to what purpose?

Let’s look at what a smart meter can do.

1. It lets your supplier know what you’re using and when you’re using it.
2. No more estimated bills to deal with.

However, a smart meter is also more expensive for those on quarterly accounts, which the vast amount of small businesses are and dependent on where you are in the country, it may not be able to transmit a signal to the supplier.

A smart meter allows you to review your usage, but as there is very little choice in the range of business tariffs (7 at best), its function appears to be aimed at the customer being proactive in reducing usage at peak times.

It’s currently the case that the smart meter which you have installed is dependent on which supplier you have. To have full viewing access to the meters data you either have to be with the supplier who installed it, or one with a compatible system.

If you decide to change suppliers, you may not have access to this data and what is more, it’s quite possible your new supplier won’t either. So you could well be back to estimations.

This post may appear to be anti smart meters but it isn’t. Smart meters are a must if we wish to be serious about reducing costs. By imposing a deadline without making sure that everyone and everything is working together is not making life easy for the customer.  It’s not going to be a smooth ride by any stretch of the imagination.

Following on from last week’s posting and in regards to our comment that, “British Gas Business has a wide range of issues that they need to be picked up on, their treatment of micro-business customers being a major one”, I think we should explain further, but before we do, it’s important to note the following:

• SMEs make up 99% of businesses operating in the UK.
• 95% of SMEs qualify as micro business.
• Only 20% of customers who have changed supplier do so again the following year (churn).
• On 18^th January 2010 OFGEM introduced new regulations to protect micro business customers.  The regulations prevent energy suppliers from rolling a micro business onto more than a one year contract.

Regarding the last point, it had been common practice for some suppliers to apply a two year roll-over contract for businesses that fail to give termination notice in exact accordance with the supplier’s terms and conditions.  Before we move on there are some more facts you will need to be aware of.

If a business meets any one of the following criteria it is categorised as a micro business:

• Uses less than 200,000kWh of gas per annum.
• Uses less than 55,000kWh of electricity per annum.
• Has less than the equivalent of 10 full time employees.
• Has a turnover of less than 2 million Euros per annum.

A surprise entry into the FTSE 100.

Every supply company, with the exception of one, applied the new regulations in the spirit they were intended by automatically classing all SMEs as micro business customers unless told otherwise.  The one exception was, yes you’ve guessed it, British Gas Business.

Why would British Gas Business take a completely different approach to every other energy supplier and are they flouting the regulations?  The answer to the first part could be that rollover contracts are usually far more expensive than negotiated contracts and so can be extremely lucrative for the supplier.  Therefore, a two year rollover contract is a licence to print money.

As for flouting the regulations, British Gas sends letters to the customer requesting confirmation that their site is micro business, thereby putting the onus on them.   They don’t get round to mentioning the micro business issue until halfway down the page and when they do touch on the subject they state “Based on the information we hold about you, we have currently defined your business as being Non-Micro Business”.  In applying this method of identification, British Gas Business rolls micro business customers onto two year contracts when they do not respond to their letter.  Remember, only 5% of SMEs are classed as non micro business, so how should we view British Gas Business’s interpretation of the regulations?

Before you give that some thought, take into account the qualifications for micro business.  Two areas relate to supply consumption, so you may come to the conclusion that British Gas Business can recognise some micro business customers by the amount they use and the answer is, yes they can, but appear to be ignoring it.  Therefore is British Gas being truthful when they inform customers whose annual usage should classify them as micro, that they are non micro?  What other information are they holding that contradicts their own data?

As previously mentioned at the beginning of this post, approximately 80% of customers, who have moved supplier the previous year, tend not do so the following year and many are rolled onto new contracts because they have not given the correct notice as stipulated in the supplier’s Ts & Cs.  Many reasons can be applied as to why this is the case.  We are of the opinion that, because a substantial proportion of SMEs employ a relatively small number of employees, they simply forget to keep energy contracts in order because they’re busy doing their own work.  Let’s face it, if it’s not an invoice that needs to be paid its importance is somewhat reduced.  But also, British Gas Business sends out letters when the contract is due with the message telling people not to worry, it’s all in hand, you don’t need to do anything, we’ve fixed your prices for another 2 years.

We’ve written to four MP’s regarding this issue of how British Gas Business are rolling micro businesses onto two year contracts and gave the details of a constituent of each of them who had fallen victim to it.  The response from those who bothered to reply was rather underwhelming.  Why this should be the case looks like the subject of a future post.

There is one final analogy which ties up last week’s post.  The restaurant in which we’re having our Christmas meal has changed the original menu and reduced the range of choices at the same time. A large menu selection can put undue pressure on restaurants and staff because they offer too much choice.  Supply companies that have too many tariffs are perhaps putting undue pressure on their billing systems and personnel because of the array of calculations necessary to bill correctly.  Reducing down the choice helps the company not the customer.

What’s on the menu?

Therefore, MP’s complaining about too many tariffs aren’t really achieving anything, but in the public eye it appears they are.  British Gas appears to get a ticking off on national TV, but in fact they’re reducing their menu and saving money as a result.  OFGEM can welcome the reduction of tariffs by suppliers as they appear to be doing some “regulating”. The net result, no one gets hurt and everyone is happy.  In the meantime micro business customers, whose supplier can identify them as micro businesses, are being rolled onto two year contracts and no-one is lifting a finger to do anything about it.  Apparently, saving a household the trauma of having too many tariffs to choose from is far more important than saving a micro business from reducing staffing levels in order to meet the cost of the contract British Gas Business has rather shamefully forced upon them.

Anyone watching the British Gas chairman, Phil Bentley, being interviewed on Newsnight by Jeremy Paxman last week, could be forgiven in thinking he got a bit of a verbal hiding.  He did back him into a corner over wholesale prices not falling when they should have, but he let him off, no doubt because he was running out of time and the bell went.  Mr Bentley did admit that there are far too many tariffs on offer and that they would be reducing them down to just two tariff types, variable and fixed.  Was there a third type that no one knows about?  Even MP’s have raised concerns at the number of tariffs, which they believe confuses customers.  Mr Bentley also confessed to offering tariffs at below market prices therefore preventing smaller energy companies from being competitive.

On the issue of tariff types, from a logical point of view, one may as well complain about the range of tinned soups on offer in the supermarket, Heinz alone offers over 60 different types, but how about all the other brands available?  Even the supermarkets have got in on the act and brought out their own brands.  Sound familiar?

If things weren’t confusing enough, some of the good soups are cheaper than the bad ones because supermarkets and manufacturers occasionally run lost leader campaigns to get people to try their products and continue to do so after the offer is removed.  So any argument of reducing the range of a product and simplifying costs is surely anti-competitive.  Soup manufacturers have overheads and costs dependant on how they source the ingredients of their products and where they are made.  After all, I do have a choice of buying a tasty, rich tin of soup or a watery liquid.  What is more, should we really insist on soups being charged at the correct price or am I depriving people of sniffing out a bargain?  Who is losing out; the smaller supplier? Surely they can market themselves accordingly to encourage new customers; Heinz wasn’t the cheapest last time I looked.

So why the analogy with soups you may ask, quite simply the range of products on offer with supply companies is no different than the range of soups on offer at your local supermarket.  The whole issue of too many tariffs is a complete nonsense.

British Gas have a wide range of issues that they need to be picked up on, their treatment of micro-business customers being a major one, but too many tariffs and lost leaders are not.  Mr Paxman hardly laid a glove on Mr Bentley and Mr Bentley knows it.

A final observation: two tariff types does not mean a reduction in the range of products, it just means that tariffs fall into two categories, in other words no difference to what is available now.