Could your energy retail business benefit from improved cashflow and reduced costs by tackling high consumption?
The issues of high Estimated Annual Consumption (EAC) and Annualised Advance (AA) instances within settlements are well known and have been the subject of much discussion within the industry. Suppliers are required to address the highest of these instances but the thresholds set by Elexon are very high compared to average consumption, massive benefits can be realised by considering values much lower than the Elexon thresholds.
The Elexon High EAC/AA Report
Elexon produce a report at the end of each month known as the Large EAC/AA report. This report, however, has thresholds that sit far above the average EAC for each profile class. Many material errors occur below these thresholds, resolving these can have a profound, positive effect on a suppliers cashflow and avoid inflated costs where issues are not being resolved before the final settlement reconciliation run (RF).
The table below demonstrates that the vast majority of issues will never appear on the Elexon report.
| Profile Class |
Description |
Average Consumption (kWh) |
Visible On Elexon Report at (kWh) |
| 1 |
Domestic Unrestricted (1 rate) |
3,562 |
160,000 |
| 2 |
Domestic with Switched Load (Economy 7) |
7,398 |
110,000 |
| 3 |
Non- Domestic unrestricted (SME) |
11,831 |
200,000 |
| 4 |
Non- Domestic with switched load (SME) |
24,150 |
140,000 |
| 5 |
Load Factor <20% |
70,072 |
220,000 |
| 6 |
Load Factor 20-30% |
107,035 |
320,000 |
| 7 |
Load Factor 30-40% |
136,619 |
430,000 |
| 8 |
Load Factor >40% |
192,759 |
690,000 |
These thresholds are recognised to be high, but they are designed to be an achievable minimum, so we are in a position where suppliers are rewarded with competitive advantage by working below the threshold rather than being forced to do so.
The Benefits of looking below the threshold
Having processes to systematically address erroneous EAC/AA instances is one of the best ways to optimise the variations and absolute levels of a suppliers biggest costs. High impact problems can cause unforeseen spikes which can put a significant strain on cashflow.
The main benefits of addressing high consumption values in settlements are:
- Improved Cashflow – High EACs will often be replaced by a correct AA once actual reads are available, however the nature of the smoothing algorithm applied to EAC calculations means that the EAC itself can remain very high for a long period of time. These instances inflate energy costs at the first few settlements runs.
- Reduced Costs – Erroneously High AAs or high EACs which are not replaced by correct AAs due to problems preventing actual reads from being validated or a lack of actual readings for an MPAN can cause inflated costs which become crystalised if allowed to pass the RF boundary (14 months).
Ultimately, reducing the number of erroneously high consumption values will improve the margin achieved by an energy retail business and provide a more consistent and predictable cashflow situation.
What is a sensible threshold
Given the large gap between average consumption and the Elexon thresholds, there is benefit for suppliers in working to a lower threshold. Clearly the number of instances and therefore effort required from the supplier increases as the threshold decreases. So what is a sensible limit?
We believe that an absolute EAC/AA limit is arbitrary and not useful in terms of a supplier looking to optimise their position. The thresholds are a useful way for Elexon to ensure that suppliers are obliged to resolve the highest instances whilst balancing that with the burden of work imposed on suppliers and the management overhead. Instead, a measure of the financial impact combined with knowledge of the age of the problem are most useful in establishing which instances should be considered. All advances down to zero and even negative advances can have an impact, and these can be prioritised by age and financial value to the supplier depending upon the relative priorities.
Understanding your portfolio to make the right choices
Given finite resources it is often impractical to tackle all issues in a portfolio at once, given the right information suppliers can choose to prioritise by a number of strategies including:
- Cashflow Optimisation : Ensure that the highest impact instances approaching any settlement run are resolved first
- Overall Cost Reduction : Ensure that all instances approaching RF are resolved first
Our advanced tools can quickly analyse a suppliers portfolio and answer the following questions:
- What is the total exposure to inflated costs?
- What is a sensible lower limit (of Impact rather than absolute EAC/AA) given finite resources ?
- What are my priorities? ( Cashflow Reduction, Improved Margin or other)?
The ENSEK Settlements Recovery Service
Our Operational Management and Recovery team are highly adept at resolving all settlement issues including instances of high EAC/AA and erroneous transfers. We can supplement your inhouse settlement capability who may not have the capacity to address the vast number of instances which fall below the Elexon thresholds. Unless you are currently working these issues it is likely that you could reduce costs considerably.
Our recovery service operates on a success fee arrangement – there are NO upfront costs and fees are based on a percentage of confirmed recovery.
