A typical commercial and industrial (C&I) consumer can spend millions of pounds on electricity each year. The recent turmoil in wholesale markets has made energy costs a particular focus for many companies, so getting accurate and timely bills is critical to a company’s ability to manage its cash flows and budgets.
But pulling together an accurate electricity bill at the end of the month isn’t all that easy and unfortunately, the initial invoice produced by the supplier will always be wrong.
On the face of it, this is surprising. Consumers pay for their electricity in arrears and it shouldn’t be beyond the capacity of a sophisticated electricity supplier – using modern technology – to precisely measure the volume of electricity its customer has used, and then charge it accurately for that consumption.
But it’s not that simple – there are myriad reasons why electricity bills are almost impossible to get right the first time. Unfortunately, industry suppliers have been very poor at communicating this and even worse at fixing the problem.
Garbage in, garbage out
Let’s start with what is actually measured. The electricity supplier collects half hourly usage data from every meter in the business – collecting around 1,440 data points for each meter every month. Some of that data isn’t correct and as a result needs to be estimated, and then subsequently corrected, through a process run by Elexon that involves multiple settlement runs over an extended timeline.
The settlement process is conducted in several stages, including initial, revised, and final settlements, allowing for the correction of data and ensuring the accuracy of this data in the system. This multi-stage approach provides a mechanism for parties to submit updated metering information or settle disputes. Ofgem typically allows 14 months for usage figures to be finalised.
Volume figures also depend on the supplier knowing which meters are currently connected. If meters are disconnected or de-energised without the supplier being informed, then this is where many of the problems start. When a meter is faulty or disconnected, accurate recording of electricity usage is disrupted, necessitating immediate action within the settlement process. Initially, historical consumption data, adjusted for specific conditions like seasonal changes, is used to estimate the missing data. This ensures the continuation of financial settlements between market participants without delay.
Simultaneously, the issue is reported for investigation, leading to the repair or replacement of the meter. Once the meter is operational, actual data is collected and compared with the estimates. If discrepancies are found, the settlements are corrected accordingly to reflect true consumption, ensuring fair financial transactions. This scenario underscores the importance of the swift resolution of meter faults and accurate estimation techniques to maintain the integrity of the settlements process, with a focus on transparency and communication among all parties involved to uphold trust in the system.
Once the volume data is corrected it’s then possible to use this to calculate the other costs.
Digging into network costs
Network costs – those associated with the operation and maintenance of the electric grid – are circa £35/MWh for C&I consumers. They comprise: transmission network use of system (TNUoS); distribution use of system (DUoS); balancing services use of system (BSUoS); and transmission and distribution losses (Tloss and Dloss). Many of these are simply not definitively known by the supplier at the time of billing or are subject to industry data errors.
Take TNUoS charges for example – since the removal of triad charges from bills in April 2023 these charges are now based on Targeted Charging Reviews (TCRs); Ofgem defines a charging band based on each consumer’s consumption. Although the fixed charge rate is known in advance, TCR band allocation data is poor, meaning that bandings can be changed. There is no automated system by which the supplier is notified of these changes, meaning that bills can be sent out based on the wrong charging band.
DUoS charges cover the cost of installing and maintaining local electricity distribution networks and vary by region, as they are set by each distribution network operator (DNO). The charges are time-banded, depending on electricity demand, to discourage energy use in periods of high demand, and shift it to periods when the network is in surplus. Unfortunately, due to the sheer number of permutations of charges, it is not uncommon for the DNO to make a mistake in its DUoS charging statements.
In addition, this part of the bill includes charges for inevitable losses that occur as electricity is moved through the grid. Tloss and Dloss make up around £4/MWh of the total bill but vary with the price of energy. These losses are estimated until the final settlement run, so initially they are estimates.
Changing standing charges
There are other elements of the bill that aren’t linked to the volume of power used. For example, the network operator assigns each customer a certain Authorised Supply Capacity (ASC), which is the amount of capacity reserved for it from the grid. This appears on bills as the Capacity Charge. Again, there is no automated feed for suppliers to receive this figure, so if the customer has not provided the correct ASC, or if it is changed by the operator and the supplier isn’t informed, it will be incorrectly charged.
Environmental charges
Successive governments have funded a range of initiatives to decarbonise the country’s power system through hypothecated charges which are applied to electricity bills. Many of these charges are market-based or impacted by weather, meaning that their quantum varies over time, adding further complexity to billing.
These charges include payments for the Renewables Obligation (RO), Feed-in Tariffs, Contracts for Difference (CfDs), the Capacity Market and the Climate Change Levy (CCL). Collectively, these charges come to nearly £60/MWh, significantly more than the network costs. In all cases, these will be estimated at the time of the bill, with final calculation not actually possible until over 14 months after the original bill was created.
Although the RO is no longer offered as subsidy to new renewables, a large volume of existing capacity is continuing to receive payouts from the scheme. One of its wrinkles is that its overall cost is unknown until after the annual compliance date, when the number of Renewable Obligation Certificates (ROCs) surrendered is known, and the costs of the shortfall – if one occurs – are recovered from suppliers.
Renewable Energy Guarantees of Origin (REGO) pass-through costs are also difficult to bill until after the end of the compliance year. This is because the REGO loss factor used by Ofgem is not published until after REGOs have to be issued – due to the regulatory process and operational requirements. This delay in publishing the REGO loss factor until after issuance is to ensure accurate tracking, prevent double counting, and maintain transparency in the renewable energy market.
As REGOs can’t be transferred from one compliance period to another like ROCs, getting these calculations correct is a complex process. If you add into this the need to meet compliance targets of 100% renewable electricity then you also need to overbuy REGOs to ensure this level of compliance. This is because there’s a high chance that during the reconciliation process, your consumption will be marked up in the system.
Incorrect commodity pricing
Almost none of the above relates to the actual wholesale price of power that the supplier sources from the market. Here, the supplier relies on its wholesale provider or trading team to provide correct calculations of the price at which it has sourced that power, and the volume actually supplied. Unsurprisingly, mistakes happen in correctly booking and allocating each wholesale trade – which many suppliers keep in a separate system – to the right customer account. As a result the wholesale billing rate – which is also used to calculate other charges – can often be wrong.
The billing problem
The combination of a vast amount of data at an interval level, the multiplicity of charges within energy bills which can often be time dependant, the estimation of charges that can’t be known in advance, the extended reconciliation processes, lack of automated information transfers and significant potential for human error, mean getting bills right first time is impossible.
It’s what happens after this initial “incorrect” bill that causes the industry – and in particular C&I consumers – problems.
The current fix
Businesses with numerous sites and meters particularly struggle to maintain accurate billing, exacerbated by the absence of automated processes for bill validation and expertise. This challenge is compounded by the time and resources required for manual bill review, making it hard for companies to consistently audit their energy expenses, thus risking significant overpayments.
Unfortunately, if a C&I consumer has been overbilled, the supplier has no incentive to own up to – and repay – their customer’s overpayment. As a result, many C&I consumers turn to third party bill validators to recover overpayments and ensure they are only being charged correctly for the energy they consume. In some cases, the cost of bill validation – both external and internal – can be more than the margin these consumers pay for supply.
The better way
Billing C&I customers supplied under standard flexible contracts – where volume, price and rates data can be unique in each settlement period – is a very complex matrix calculation.
Furthermore, these data points can, and often do, change in each settlement period more than once. To manage this, suppliers need modern software and data storage that’s architected to meet this challenge combined with processes that enable a transparent audit trail or bridge for every data point, and at every interval level, from its inception to its final settled amount.
If suppliers want the C&I sector to play an active role in the energy transition – important given that it’s responsible for 40% of the EU’s final energy usage – and they want the sector to develop products and services that enable the most efficient and lowest cost integration of renewable sources of energy, they will need the trust of their C&I customers. Something that’s hard to achieve if they can’t even bill and reconcile a standard flexible supply contract.