Based on my experience, many businesses pay their natural gas and electricity supply invoices or utility bills without doing an energy bill audit. But who can blame them? It takes time to do the research. It takes time to do the calculations. Moreover, it’s hard to believe that experienced energy suppliers and utilities that bill thousands of customers every month generate a high percentage of incorrect invoices.
When it comes to energy, it’s all about the bills. There’s a wealth of information in the bills. From my perspective, businesses can’t truly understand what their energy suppliers’ deals or utility rate plans are until they fully explore their invoices. Understanding how energy suppliers bill their deals is crucial to effective energy procurement.
There are three reasons to dig deep into your energy bills.
Energy Bill Audits Result in Error Discovery and Refunds
Sometimes, electricity and natural gas suppliers make invoicing mistakes.
The most common errors connected to natural gas and electricity supply invoices are volume, price, and taxes. Volumetric errors can be related to incorrect coding, conversion mistakes tied to BTU (natural gas) or line losses (both natural gas and electricity), or the improper application of contractual bandwidth or “swing” provisions.
Price errors can take multiple forms. Regarding natural gas, suppliers can incorrectly code the contract price. Or the cost assigned to incremental volumes (when billed volumes are greater than the contract quantity) doesn’t line up with contract terms. Like natural gas, electricity suppliers may input erroneous contract prices into their billing system. Or, suppliers can miscalculate generation or transmission-related capacity cost pass-through charges for many different reasons.
I’ve learned over the years that customers need to identify billing errors in “real-time.” It takes time for suppliers to process invoice corrections. If the problem isn’t addressed quickly and becomes perpetual, the accounting associated with bill / rebill becomes mountainous – especially if the issues are prevalent over multiple accounts connected to one business.
The billing of sales tax can also be problematic. Often, tax errors result from businesses not submitting sales tax exemptions when applicable. Consequently, I recommend that clients forward sales-tax exemption forms to suppliers at the time of deal completion to avoid overcharges.
Energy Invoice Auditing Can Result in Savings
In addition to finding errors, an energy bill audit can lead to savings.
Here’s an example regarding an electric utility bill.
I took a look at an electricity bill for a client. Based on the billed usage and demand, the bill looked high.
Upon review, I noticed that the electric utility based the demand charges on a significantly higher demand than actual demand. Based on experience, I knew this was a red flag – and I continued my investigation.
The next step was to explore the utility’s rules and regulations to determine why a billed demand could be higher than actual. I discovered that the utility imposed a minimum “demand charge” if the measured demand was below the minimum for a specific rate classification. But the client’s actual demand was roughly 90% lower than the minimum billed demand – another red flag.
After further reviewing the utility’s rules and regulations, I found another rate classification that more appropriately aligned with the client’s actual demand and usage.
The next step was to discuss this with the utility. Once alerted, the utility launched an investigation. The utility determined that the account had an incorrect rate code. The utility reassigned the account to the proper rate classification.
As a result, the reclassification led to a 91% reduction in the client’s electricity distribution charges. Huge!
There are many other ways that energy bill reviews can bear savings fruit.
Future Benefits Tied to Energy Bill Audits
The previous example was on the utility side. On the supplier side, I find that invoice reviews can lead to the discovery of future cost avoidance, future lowered-risk, or future savings opportunities.
Opportunities exist when businesses enter into less-than-optimal natural gas or electricity supply deals. Less-than-optimal deals can stem from massive hidden energy broker charges, bad bandwidth provisions, or risky pricing structures.
When businesses can identify shortcomings through an energy bill audit, they can cure and capture (through best-practice natural gas procurement and electricity procurement) the benefits of optimization in future energy supply agreements.
Wrapping Up Energy Bill Auditing
Energy invoice audits can bear fruit in the following ways:
- Refunds
- Immediate savings
- Future savings and cost avoidance, and longer-term energy contract optimization
Call to Action!
Your business doesn’t have to leak energy dollars. You can have peace of mind knowing that your bills are being audited and corrected, that you’re paying what you should, and that your energy supply deals are optimal. Foster LLC is here to help. Contact Foster LLC to learn more.
