PSO Levy to increase by up to 85% on 1st October 2014 – Is your Business ready to offset the increase?

<br /> Declan Quinn

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Declan Quinn

If you are a business leader / owner responsible for a medium or large electric supply for your company, you may have seen the recent communication from the Commission for Energy Regulation (CER).

The CER has just announced that from 1st October 2014 the electricity PSO Levy will increase by up to 85% for medium to large businesses. Conversely, if you pay for a smaller supply you may be experiencing “PSO apathy” and be thinking these increased charges don’t affect me. Think again; small users will see their PSO levy increase by up to 71%.

What is PSO?

The Public Service Obligation (PSO) was introduced in Ireland in 2002 post implementation of competition in the electricity market. Purpose of the PSO levy being to compensate ESB Networks for the additional costs incurred in their endeavors to produce electric from peat and other environmentally friendly (wind, hydro & CHP) forms of energy.

What is the relationship between PSO levy and Maximum Import Capacity (MIC)?

The foundation of the PSO levy charge is the Maximum Import Capacity (MIC). The MIC is calculated based on the total electrical load installed at your premises and the timing of this load. In non-technical terms, your premises MIC is like a contracted order between your business and ESB Networks. You are telling ESB Networks to always make available your MIC requirements. These requirements are determined as the upper limit on your total electrical demand. The MIC needs to be high enough to meet demands of the business.

Regulator’s role in determining PSO Levy?

The Commission for Energy Regulation (CER) determines annually what the next year’s PSO levy will be. The key question for businesses is why do we have to incur such a large increase this year and what are the drivers for this increase?

  • Lower wholesale electricity prices. Average wholesale prices have dropped by 11% from original forecast. The means that electric generation plants will need more PSO revenue to cover their costs.
  • Increased generation of renewable energy. Hence more PSO revenue is needed to cover cost of generation

How will the PSO levy increase apply to my business?

There are two business categories affected by the increase in PSO levy.

  1. Small commercial customers with an MIC <30kVA. For this group the PSO levy will be €18.47/month as opposed to current €10.82 / month.
  2. Medium and large energy consumers with an MIC >30kVA. Medium and large customers will now pay €2.85 / kVA as opposed to current €1.54/ kVA.

Note:– for medium and large electric consumers the MIC and PSO charges can account for up to 11% of your monthly bill at current rates. Under the new PSO levy from 1st October 2014 the new charges will now account for on average over 14% of the monthly bill. In monetary terms, let’s assume you have a medium supply with an MIC of 350kVA. For your business the annual cost increase will be €5,500 (i.e. the business must find an extra €458/month to fund the increase in PSO levy).

In short the PSO levy charges are unavoidable; they are essential to pay for investment in renewal energy. However, there are ways to reduce the impact of PSO levy increase on 1st October 2014.

  1. Use Less Energy. An obvious answer – surprisingly overlooked by most businesses.
  2. Review your MIC. When was the last time someone measured your actual electrical load requirements v’s your planned loading and contract to ESB Networks?
  3. Perform and Energy Audit. Energy audits can identify some “low hanging fruit” which could potentially reduce your loading. This would then lead to reduced MIC and would lower the businesses’ PSO charges.

When was the last time you reviewed and took action with your electric fixed charges like PSO and MIC?

As Winston Churchill once said, “ I never worry about action, but only inaction”.

Inaction is not an option when your energy costs are rising. Contact me to discuss your options to try and offset this increase.

 

Mean, Lean and Green Energy Management

The cost of energy affects every organisation from charities and the voluntary sector through to manufacturing and leisure businesses.  Management of this essential business cost is a minefield for those without access to the right skills and expertise.

Chris Allison, Managing Director of Auditel, a cost management consultancy, argues that organisations should be turning to professional consultants for energy management advice.  He suggests that many organisations could witness typical savings in excess of 30% on their energy costs, not to mention improved procurement processes and business efficiencies.

Auditel has pioneered effective energy management providing clients with solutions to all of their needs, from procurement of services and management of consumption through to complex energy management programmes using the latest renewable sources.

According to Allison: Energy is costing businesses hundreds of millions pounds annually and squeezing profitability for enterprises of every size. They need to find a way to sensibly and vigorously manage these costs.  As cost management experts we combine skilled people with state of the art analytical tools, industry knowledge,  buying power and detailed process in order to get the best results for our clients.

Mean, lean and green describes very clearly and simply the three step Auditel energy management process.

Allison explains: We call step one mean because its all about setting the price in order to achieve a return on investment. Energy tariffs and procurement can be extremely complex.  We examine and benchmark energy procurement to identify areas of improvement then manage the whole process on our clients behalf.

Stage two is the lean phase. Having the right energy management strategy in place can have a significant impact on organisational performance. Our specialists analyse  consumption and review  energy requirements before providing and implementing a detailed strategy that meets the energy needs of the client.

Finally comes the green phase. Renewable energy is not only environmentally friendly, but it can also be a potential revenue source.  Our experts can advise on every aspect of this complex topic from funding options through to selling excess energy back to the supplier.”

Organisations continually need to examine their energy costs on a regular basis. With typical energy savings of 25% being achieved by implementing an energy management strategy, it is surely time to consider outsourcing to a professional consultant?

Energy Management

Energy Management is a crucial part of any organisation and more and more are really getting up to speed with this area as a means to reducing their spend. Like any account, be it big or small, it needs to be managed carefully. From tendering, to measuring, establishing results and reporting. The problem some face is that the resources within their organisation are not easily available to carry out such ongoing activity. They also are not up to speed with current industry practice and developments. That is where Auditel can help. We can be your outsourced energy management consultants.

From Energy Audits to tendering and account management you can have it all with no full time salary additions or extra drain on present resource. Our ongoing training and market knowledge ensures you get the latest technology in helping you to reduce your emissions, carbon footprint and your costs.

You Can Cut Your Oil Heating Costs

Are there any real guarantees in this world? Well, I’ll let you decide on that one. But, I do know that if you’re spending €10,000 or more annually on oil heating – we should talk.

Businesses across Ireland are switching from oil to biomass for one very good reason. Typically, you will save upwards of two thirds of your current cost of oil. And, with the Auditel cost management approach, we can help you work through an ESCO (Energy Services Company) to give 100% certainty over your heating costs for the next three years. During this period, the ESCO will install and maintain all required physical plant, provide total energy cost stability and do this with no capital outlay on your part.

After an initial no cost meeting we can present to you a simple, one page business case outlining current costs, projected costs, savings and project payback time.

Given the ever increasing costs of oil heat, is there any reason not to explore this impressive and sustainable cost saving measure? Contact us to book your free Business Health Check

When did you last tender your energy contracts??

When did you last tender your energy contracts?  Ok, so you have never tendered them. We can tender these for you and achieve anywhere from 8 to 12% reduction in rate and we will analyse your capacity charges to make sure you are not paying for capacity that you do not need. If we find something we can share the saving. If you are on competitive rates and we do not find a saving, our tender analysis will be free to you.

What have you got to lose?

Well if you do not tender you stand to lose on what you would have saved by having mus tender.

Auditel are doing this every day for our clients and we are achieving these types of savings.

Concerned about Energy Costs? You Should Be

Escalating energy costs have become a major headache for Irish companies of all sizes. Over 60% of electricity is generated by natural gas sourced from the U.K. and the weakening Euro has elevating the cost of electricity production in Ireland over the recent years. The rising cost of capital has also forced increased transmission and distribution costs on the market (expect another 7% increase in October). In a market place where inflation is running at an all time low, such a rise in a non-core cost eats directly in to bottom line profitability.

How can Finance teams combat this rising cost?
By actively managing both energy unit cost and consumption, organisations place themselves in the best possible position to minimise this cost factor.

Sounds easy? Maybe not.
Within Irish organisations today, in-house resources for managing non-core costs have become increasingly stretched. To become familiar with the market players and the industry terminology used is time-consuming and ultimately distracts from essential core activities. Deciphering “DUOS” charges, “TUOS” charges, “SEMO” charges, Capacity charges, Multi-tariff rates, etc. etc. is a minefield and requires expertise not normally found in finance departments. Comparing rates from competing suppliers has become increasingly complicated and selecting the “best deal” requires in-depth analysis.

So what is the solution?
By outsourcing the management of energy cost, the following benefits will arise.

  • Ensures lowest possible cost for energy purchase
  • Ensures strategic management of energy consumption
  • Releases in-house resources to concentrate on core activities
  • Allows peace of mind, in the knowledge that this cost is being actively managed by experts

Sounds great, but what is the cost?
Auditel can provide this service on a contingency basis with no direct cost to the client. Payment is made through shared savings with no upfront fees. We can take over management of your energy costs today and your organisations bottom line can improve immediately. If there are no savings, then there is no cost. So the question instead of being “Why?” becomes “Why not?”

IE July Energy Index Jumps

I’m sure it doesn’t surprise many people to know that energy costs are rising in Ireland.  The recent Bord Gais Energy Index shows that July saw the biggest jump in several months.  The index rose 8% in July to 144.  One of the reasons for the rise in Irish energy costs is the weakening Euro.  While your guess is a good as mine as to what the Euro is going to do over the coming months, it is hard for me to see it strengthening any time soon.

Keep in mind that it isn’t just heating oil and diesel that are affected by this Euro trend.  Most electricity in Ireland is produced by burning natural gas.  Much of our gas comes from the UK and so the weaker Euro vs the British Pound is increasing the cost of electricity.  Some additional factors can be found in this article.

What action can you take as a result of this information?  My first suggestion would be to schedule an Auditel Business Health Check.  This is an examination of all your business overheads expenditures, including electricity, by a qualified Auditel consultant using our unique Total Cost of Purchase approach.  It takes into account both the direct and indirect costs associated with making effective cost management decisions.  This service, coupled with our performance driven contingency fee model means that our service can be totally self funding.

When was the last time you reviewed your energy costs?  If there is any way to reduce your energy costs and improve your bottom line, Auditel will take the time to find it for you!