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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.

 

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