In these unprecedented and uncertain times, managing cashflow is set to be all important for SMEs, and with electricity typically one of the top 10 expenses for businesses - we have produced some tips for how you can reduce electricity costs quickly, with minimal up-front cost.
In addition to these tips, you should also be making sure that you are not wasting power through leaving appliances, lights or air conditioning on after hours, and if you have a larger facility and are expecting to have less utilisation than normal - you should review building management system settings, and/or any timers that control power usage.
1. Make sure you are on the best meter type and pricing plan to suit your power usage
There are a number of different pricing plans available to businesses, depending on the type of meter you have on your site.
As a general rule of thumb, if a site uses more than 500,000kWh per annum it should be on a “Time of Use” (TOU) meter, and below 200,000kWh should be “Non Time of Use” (NTOU). If power use falls in between those levels then you should be reviewing which meter type is best. If you have recently moved into a site, the meter and pricing plan will be based on the previous occupant's usage, which could be very different to yours.
For smaller commercial, or NTOU sites, the most common plans available are “Anytime’, or “Day/Night”. The best plan for your business will depend on when you use power – for example a bakery that uses peak power in the early morning may be better off on “Day/Night”, while a real estate agents office will almost certainly be better as “Anytime”.
In order to check if you are on the best plan, you need to review when your facility is consuming energy (you should also consider if this will change materially in the coming months) and then model this against the pricing plans available.
Start out by contacting your energy retailer and requesting a usage history. Then examine the data over time, looking at when you use power over a day and across a week. Compare what your total costs would be with the various different plans/meters available and if your current plan or meter type isn’t the best then ask to be changed.
2. Review your network charges
You are charged a network cost which typically accounts for around 25-40% of your electricity bill. This is the fee that goes to your local lines company (Vector, Orion etc) .
If you are on a “Time of Use” plan, then the network costs are shown as a separate line item on your bill, otherwise, it's included in the total cost of your bill.
The charges differ by network and can include things like capacity, peak demand and power factor.
These charges are generally directly passed-through by your retailer.
In many cases you can reduce these charges, but your retailer is unlikely to proactively advise you of this, especially if you fall under the threshold of being an ‘account managed’ customer. The power companies simply aren’t resourced to offer this service.
It can be quite complex to interpret your charges, let alone work out if you can reduce them but by using an expert consultant, you can ensure your network charges are optimised and potentially save thousands of dollars every month.
As an example - we recently saved a small business client $38,000 per annum (15% of their total power cost) through optimising their network tariff.
3. Renegotiate your supply agreement
Most businesses are on fixed term electricity contracts, however there is nothing to stop you from renegotiating your current contract during the term. And if you are not currently on a contract then you should be as this will almost certainly result in a lower rate, and a lower monthly bill.
If you are a larger business, the power companies will likely price you individually and will often offer pricing based on your relative attractiveness to them. For instance during my time running the business team at Meridian, we would make pricing decisions by considering things like customer size, usage profile, perceived credit risk, cost to serve as well as how 'full' our contract book was at the time.
If you are on a TOU Contract it is virtually impossible to exit the contract early, however, your supplier may be willing to renegotiate a reduction in your current rate. This could be in return for you extending the term; adding additional sites to the contract; or signing a new contract early. This is particularly the case when wholesale power prices have declined since your agreement was signed (which could reasonably be expected to occur in an economic downturn), or if you are coming toward the end of your agreement.
There is no harm in asking your power supplier what is possible.
If you have NTOU sites, your contract will most likely include early termination, or ‘Break’ fees.
The cost of break fees is typically small and may pale into comparison against savings you could make by finding a better deal from another supplier. The NTOU market is typically very competitive with up to 20 providers able to offer supply and it can pay to test the market regularly.
If you are a smaller business with a single site, we would recommend you look at Switchme, who offer a free price check service.
Whether you are currently locked into a contract for an extended period of time, or your agreement expires soon, you may wish to engage a consultant in order to get the best deal and contractual terms from the market.
If you would like any support or further information, we are currently offering a free no obligation consultation for businesses (and schools) who spend > $30,000 per annum on power. Contact me directly on 021 225 7499 - Paul Farrelly
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