Joe Maloney, Partnerships Sales Manager with Scottish Utilities, looks at the challenges – and benefits – of unravelling historic energy contracts
Energy is an expensive commodity for any business. The past few years of conflict, in the Ukraine and more recently the Gulf, have been an unwelcome reminder of just how fragile global energy supplies are, and just how quickly costs can start to escalate as a result.
The challenges are compounded for businesses that operate across multiple sites, especially when they’ve expanded through acquisition, something which is the case for many independent education providers.
As more sites are added, the reality for many is that they have multiple energy contracts in place, with a range of suppliers, some of whom may themselves have been acquired or simply disappeared since the original contract was signed – if, indeed, anyone knows when that was. In practice, the paperwork for an energy contact is very often lost when the business changes hands.
None of these challenges are insurmountable, but for a busy education provider, allocating the time and manpower needed to unravel a tangled web of utilities contracts can be daunting. However, the cost of doing nothing is often much higher.
For one multi-site education provider, a project to audit and update the dozens of different gas and electricity supply contracts in place across their business means as the new school year starts, the business will be saving £1 million over the next 12 months, on what would have been a £3.2 million spend on energy across all its sites.
The project began more than a year ago when Lynx Purchasing asked our business, Scottish Utilities, to audit the energy costs of one of its customers, an education provider operating across more than 20 sites. They knew they were paying a lot, and probably far too much, for gas and electricity, but didn’t really know where to start.
There are two basic strands to any energy audit. The first is the physical checks. Where are all the meters at each site located? That, in itself, can involve a fair amount of detective work. In the case of this particular business, we found more than 80 meters across the whole estate. A series of checks then follow – are the meters working, are they set to the right tariff, are they ever read or monitored, does the company that’s issuing the bills ever even make any reference to the meters?
Alongside the physical checks, there’s also a paper trail to follow. Who are the energy contracts with, who originally signed them – if they were ever signed at all – has the provider changed subsequently, is the business being billed correctly?
What we found were contacts with many different suppliers at an equally wide range of charges. Many of the issues we identified are common to many operators. These included:
- Paying bills for energy contacts which had expired. Out-of-contract rates and variable tariffs are generally 30% higher than contracted rates
- Contacts that were effectively invalid because they had been taken out in the name of by the wrong legal entity – e.g. a parent company rather than the individual site
- Rogue suppliers, often those that have acquired contracts from suppliers that have gone out of business, charging far more than had been agreed.
- Incorrect levels of VAT and climate change levy being charged.
As a result, the business is starting the new academic year with transparent contracts in place with single energy provider, a clear understanding of what it will pay, including a bill validation process to ensure that bills are checked as they come in, and a projected saving of more than 40% on its energy bills in the next year.
Even higher levels of savings may be achieved when the time is right to negotiate longer term contracts, but the current uncertainty in the global market makes this the wrong time to be locking in longer term deals. Our audit also included water supply to the sites, with a similar process followed and significant savings achieved.
This is not just an issue for the education sector. Any business that operates across multiple sites and has taken on existing contracts through acquisition is likely to have similar issues. In a market where costs are everhigher and every penny counts, it’s worth getting specialist support to make the cost saving.
Scottish Utilities has relationships with over 20 UK energy suppliers including the “Big Six”. On an audit, this enables us to quickly determine who the current suppliers are, the contract status and consumption history for budgeting.
Along with the procurement of the energy pricing, we also align end dates across the portfolio. This enables us to have greater buying power at renewal and keeps the contracts under control, by all ending at the same time.