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AuditelDavid Powell

Burn more gas to save money? (Take or Pay clauses)

By 16th January 2012April 17th, 2019No Comments

A strange question at first sight, however quite a pertinent one due to the warmer than average winter we’re having and the implications this can have for some business energy contracts.

Many energy suppliers, particularly Gas, include in their contracts something known as a ‘Take or Pay’ clause giving pre-determined upper and lower limits that your consumption must fall within in order to avoid what are usually fairly punitive charges. i.e. Take what you’ve contracted for or Pay for it anyway.

The pre-set limits are based on your ‘AQ’ – this should be your average consumption over the previous 3 years or so. However we’ve often found this industry database figure to be wildly inaccurate and should be checked against your predicted consumption before accepting any contract. Your AQ becomes your contractual 100% of consumption and the limits are a percentage either side of this, with the limits differing from supplier to supplier.

Take or Pay clauses have been historically been included in gas contracts but more recently many suppliers have begun to include them in their electric contracts as well. Another point to note is that if you are outside your pre-set limit the energy supplier doesn’t just charge you up to that limit but all the way to 100% consumption ie your pre-determined AQ.

The fairly bizarre logic of this follows that it can, in some cases, be cheaper to use more energy!

If you don’t think you will reach your minimum consumption limit it can be cheaper to consume excess gas or electric at your contracted rate rather than be hit with reconciliation charges. For example, if your minimum consumption limit is 80% of your AQ and you’ve only used 75%, the energy company could then charge you for 25% of consumption at a reconciliation rate (almost always higher than the contracted rate). Whereas you could get inside the limit by using 5% more energy – and this would be charged at what would likely be more competitive contracted rate, thereby saving you money.

This is obviously completely at odds with the government’s current drive to reduce the UK’s carbon consumption but nevertheless  is a cost effective strategy for companies being told they must use X amount of energy.

What you, or anyone responsible for energy within your organisation, needs to consider is:

  • Has our consumption been stable over the last 3 or more years?
  • Are we using less gas because of the warmer than average temperatures?
  • How much gas or electric should we be using to avoid being hit with additional charges at the end of our energy contract?
  • How much would those charges potentially be?

This list is not exhaustive and it’s likely there are several other factors you may need to take into consideration dependent upon your circumstances.

Please contact us for a free business health check and we can answer the questions above ensuring that:

  • you aren’t going to be hit with ‘take or pay’ charges,
  • you’re on a competitive tariff and
  • you haven’t historically been overbilled on your energy supplies amongst other checks.

We work on a contingency-based fee structure and make impressive and sustainable savings for our clients – without it costing them a penny.