Revising our people policies

If you run an energy company and you have to include tariffs when you bill your clients, you may want to work with a tariffs consultant. They can help you determine how tariffs are affecting your cash flow, and they can help you better track tariffs for your records. Of the long list of services tariff consultants can provide, unbundled is just one, but it's important.

Unbundling helps you understand the portion of the tariff related to ancillary services, stranded costs and true ups. Here's a closer look at those concepts:

Ancillary services:

Ancillary services are the services that you need to maintain the production of energy, but they aren't directly related to producing energy. In most cases, it makes sense to have a single company oversee all of these services so that they don't have to rely on other companies, and they can ensure that everything is in line to produce power.

However, if you want to be able to examine the tariffs associated with each of these components, you should have them unbundled by a consultant. Ancillary services include regulation and frequency responses, reactive supply, voltage control, scheduling and dispatch and several other categories.

Stranded Costs

In some cases, utilities also have to pay stranded costs as tariffs. These tariffs are levied to help some companies stay competitive. Namely, if an older energy company has invested a lot of money into old infrastructures and is stilling paying off debts related to it, those costs can be considered stranded costs.

If a new company decided to start supplying utility services, it would presumably have enough money to invest in new forms of energy production. The older company, in contrast, has too much money wrapped up in debt, and it cannot invest in the new technology, thus losing customers. To help level the playing field, there are stranded cost tariffs. In some cases, local governments levy these tariffs to new businesses in the field, and in other cases, they are levied on all the customers in the area. In either case, it can help to identify these costs so that you know exactly what your company is paying and whether or not you can avoid those expenses

True Ups

Finally, when a consultant unbundles your tariff costs for you, they also extract expenses related to true ups. In accounting, a true up is when a business adjusts a predicted expense to reflect an actual expense. In the case of energy companies, as you are typically dealing with commodities, the prices and tariffs may change, and the tariff assessors may include true ups in your tariffs. If you want to know exactly what you are paying in true up tariffs, you need a tariff consultant to unbundle that for you.

For more information on unbundling and other tariff consultant services, contact a consultant.