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Formatting Change & Insufficient Controls Lead To £44m BSUoS Under-Recovery
National Grid Electricity System Operator (NGESO) is the electricity system operator for Great Britain. One of their responsibilities is to recover the cost of balancing the UK electricity transmission system from stakeholder organisations (energy suppliers and generators) via Balancing Services Use of System charges (BSUoS).
In early April, NGESO notified stakeholders of an under-recovery of c£44m of BSUoS costs that were incurred in FY20. This figure is made up of £34m related to NGESO’s trading activities and £10m related to the Accelerated Loss of Mains Change Programme (ALoMCP).
So what went wrong and what are the consequences?
What Caused The Under-Recoveries?
£34m Formatting Error
We’ve all been there, entrenched in a huge spreadsheet attempting to trace back through all of the various Lookups and IF statements in a desperate attempt to find and fix the one cell that is causing that pesky error message!
Well it appears as though NGESO are not immune to the same issues. In this case, a formatting change in one of their trading systems’ export files meant that data was only being pulled through from the top row of a file used for invoicing purposes (presumably data was collected for the first HH of a day and the other 47 HH’s were missed). This affected trades that were undertook for the period of settlement day 30th September 2020 to 9th March 2021. The result; £34m of energy trading costs accidentally omitted from BSUoS charges.
£10m Memory Glitch
Another easy mistake to make – you switch off your water heater when you go away for a few days thinking you will do your bit to save the planet and your wallet. Only on returning home, you forget to turn it back on again until the minute you need some hot water!
Ironically, NGESO had recognised that they had over-recovered charges related to ALOMCP in previous years and so had temporarily ceased cost recovery in FY20. Later in FY20, as ALOMCP work picked up again, they failed to resume their cost recovery. The result; £10m of ALOMCP costs accidentally omitted.
How Will The Under-Recovered Costs Be Collected?
Since discovering the errors, NGSEO have issued several communications and hosted a webinar on the matter to help inform stakeholders and share their proposals on both how they intend to recover the under payments and prevent any reoccurrence. They have also been open to feedback and suggestions from stakeholders in order to help minimise impact.
Due to the timing of the discovery of the errors, it was not possible to correct the charges with the standard approach. This has led to a situation where NGSEO and stakeholders have had to consider the relative pros and cons of a number of recovery options with a recognition ‘that there is no perfect solution to the issue’ as stakeholders will be impacted differently depending on their role and activity during the periods of error and recovery.
For the £10m ALOMCP, it has been decided that the costs will be recovered equally across all settlement periods via the Settlement Final (SF) run for FY21. Ie. the cost will be shifted from when they were intended to be paid in FY20 to FY21. The billing for this is underway having started from settlement day 1st April 2021, which was invoiced from 28th April 2021.
For the £34m trading costs, the recovery method is not yet confirmed. The current proposal from NGESO is for the money to be collected through the Reconciliation Final (RF) run for FY20 i.e for the same HH periods in which the errors occurred.
However, EDF Energy have raised an urgent CUSC modification, CMP373, relating to this same matter, which proposes that all of the £34m of trading costs under-recovery is also spread across FY21 (as per the ALOMCP costs). The request is working its way through the modification process and a decision is expected later in May 2021.
How Does This Impact UK Businesses?
For the vast majority of UK electricity consumers, the error won’t be noticeable. Energy suppliers may choose to slightly increase their prices for FY21 to accommodate for the additional BSUoS cost recovery but when you consider that total BSUoS costs for FY20 will be of the order of £2bn, the £43m equates to c2%, so not a huge difference.
However, if your business had a ‘pass-through’ type electricity contract in place during FY20/21, you are more likely to feel a small ripple. We can take a look at the impact for the two errors.
- Electricity consumers with pass-through contracts in FY20 stand to benefit by a small amount as the £10m in costs will now be spread across all participants in FY21.
- Conversely, embedded generators with pass-through contracts stand to lose out as they not only miss their share of the BSUoS charges (embedded generators are treated as negative consumers for BSUoS charging and thus typically receive BSUoS as an embedded benefit), but also, from FY21, they are no longer eligible for BSUoS benefits following a code change.
Scenario 1 – The CMP373 CUSC modification is rejected and the costs are recovered via the Reconciliation Final (RF) run for FY20/21.
- Electricity consumers with pass-through contracts in FY20 may find that their suppliers will look to undertake an additional reconciliation of their BSUoS charges for the affected period (30th September 2020 to 9th March 2021). This won’t be possible until the RF rates for the period are published, starting in December 2021.
- Conversely, embedded generators with pass-through contracts should consider requesting their suppliers to undertake an RF reconciliation, to capture the extra BSUoS benefit.
Scenario 2 – CMP373 CUSC modification is accepted and costs are recovered equally across all settlement periods via the Settlement Final (SF) run for FY21.
- In this case, the outcomes mimic those of the ALOMCP Costs, explained above.
A Case For Validation?
NGESO have committed to improve their processes to avoid a reoccurrence of these errors. This includes revised process controls, system enhancements and risk and control reviews from external consultants. All good stuff.
However, perhaps the most surprising element of this was the time it took for the errors to come to light. In both cases, the under-recovery started in September 2020 and went by unnoticed for 6 months. This implies that not only did National Grid SEO miss the errors but that perhaps all other stakeholders being billed by NG ESO for BSUoS didn’t pick-up on it either (unless they did and it wasn’t in their interest to alert NGSEO!). This then suggests that energy suppliers and wholesale generators may want to take a good look at their invoice validation processes, if indeed they have any. Errors are somewhat inevitable in these complex billing systems, but spotting them early can save a great deal of time and money for those involved.
At Captrics, we are very familiar with billing errors! We assist our clients with the processing and checking of thousands of invoices every year.
Working together with our clients, we put in place processes to check both the integrity of the validation input data and the invoicing methodologies, going far beyond basic variation checks.
We pride ourselves on undertaking detailed checks on even the most complex of cost calculations. If you would like to explore how our services could benefit you, please don’t hesitate to get in touch.
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P3P Partners (“P3P”) own and operate sites in the energy, waste and indoor growing sectors in the UK providing design and build expertise with 100% financing of construction costs.
They have built and now operate over 70MW of combined heat and power generation on glasshouses, hotels and industrial sites across the UK, as well as 5MW of solar and 6MW of reserve power.
P3P became Captrics’ first UK customer shortly after Captrics established a UK presence in 2019.
P3P’s objectives were focussed on the multiple gas and electricity contracts they operate as a core part of the ongoing management of their projects. Their goals included improving the efficiency and integrity of their contract administration, automating and strengthening invoice validation activity and seeking further insights into contract data to help establish additional cost saving opportunities.
Working With Captrics
Utilising some of the most flexible energy contracts available in the market, P3P’s contracts include exposure to ‘pass through’ non-commodity costs and dynamic commodity charging mechanisms. This makes supplier invoicing very complex. So complex that suppliers often turn to manual, Excel spreadsheet-based methods for invoice creation, as their billing engines lack the flexibility to handle the bespoke contracts.
Recognising that invoice accuracy is crucial to ensuring great investment returns, Captrics’ software has been implemented to capture the data of all stakeholder organisations, sites, meter points, contracts, invoices and meter data and run in-depth analysis of invoice accuracy.
Captrics have also been able to build a bespoke, automated validation process for checking consumption data. Comparing invoice data to their internal meter loggers has not only provided P3P peace of mind but also saved them large amounts of time that was spent on manual checks.
Benefits To P3P Partners
- Comprehensive Validation – Prior to working with Captrics, time restrictions meant P3P were only able to do basic manual spot checks of invoices, these have been replaced by in-depth, automated validations.
- Historic Audit – Captrics’ software checks month-to-month invoices as they arrive, but they were also able to check P3P’s invoice history to discover further cost recovery opportunities.
- Flexibility – Additional data sets were easy to implement and reports could be quickly created aligning with business needs.
- Administrative Efficiency – With multiple sites across the UK and complex invoicing, P3P spent large amounts of time administrating their contracts. Captrics’ automated solution has led to significant efficiency gains and improved productivity.
- Market Knowledge – Captrics’ market experience and knowledge has helped P3P better understand their contracts and has provided valuable optimisation insight.
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