Bursar’s Review Autumn 2020 Sample

Feature Autumn 2020 www.theisba.org.uk 14 Author James Robson Founder and chairman of Powerful Allies Ltd www.powerfulallies.com Strange thing, relativity. We have all been so heavily impacted by COVID-19 that Brexit, which for so long has filled our hearts with joy or dread, seems to present few challenges now. And perhaps that is how Brexit will proceed. Either way, there are underlying issues to consider when it comes to school energy supply contracts. What we know about the immediate impact of COVID-19 on the energy market The most instant and obvious effect of lockdown was a huge reduction in energy consumption across many several key sectors; education, hospitality, leisure, manufacturing and transport being the most heavily impacted. Suppliers contract months or years in advance of consumption and this resulted in a dramatic fall in energy prices as energy was literally ‘dumped’ in the market. Their losses have been considerable and compounded by late payment and unprecedented levels of bad debt. Inevitably this feeds through to future supply contracts. How this has affected energy contracts for independent schools Several important and competitive suppliers, faced with mounting bad debt across their clients, have withdrawn from the market entirely while they assess the financial damage. Others will not provide contracts for new clients, thus reducing competitive pricing options. For schools where contracts include ‘take or pay’ clauses, where a contract has volume tolerances above or below which a supplier has the right to apply penalties, the situation remains unresolved. Indeed, such penalties may not become evident until the end of a contract, so bursars must be very diligent at that time in particular. So, an absolute priority with new contracts is to seek to avoid ‘take or pay’ clauses, and to favour those suppliers which do not apply them. The paradox is that with very low consumption latterly, a contract could be easily exceeded in more normal times and so penalties could arise for excessive use, rather than for underuse. Bad debt or delayed payment impacts upon credit rating and suppliers share data on credit so, above all, I must recommend that schools continue to pay their energy bills promptly. And Brexit? Factors impacting upon the energy market under COVID-19 may well be replicated during the earlier stages of Brexit, namely, uncertainty over consumption, possibly late payment and increasing bad debt – all of which can lead to higher energy prices. But the opposite may also transpire over time, namely greater certainty, commercial prosperity and increased consumption. The same dilemma exists in the energy supply market, hence the often-divergent pricing strategies of suppliers. More positively, there is no expectation that Brexit will lead to power outages or the withholding of power. We have a large indigenous capability for energy production and international treaties protect power supply across borders. Of course, we also connect power to the Republic of Ireland, a remaining EU member. Positive strategies for bursars • retender your energy contracts now irrespective of their end date so you have time to overcome any obstacles or concerns; • ensure your tenders include at least three reputable suppliers, no matter how difficult it may be to find them. Above all, tender fully fixed and inclusive contracts with no room for manoeuvre by the supplier or your broker; • insist on complete transparency of earnings by your broker; there are virtually unlimited ways for them to hide revenue, so challenge them; • avoid ‘take or pay’ electricity contracts where possible, and where they remain (particularly with gas contracts) try to ensure the tolerances are wide and reasonable; • undertake energy audits to reduce consumption; • boarding schools should review their VAT reclaims; and • do not lose track of the bigger picture; reduced consumption means lower cost and lower carbon emissions. Work to reduce all three. James Robson, founder and chairman of Powerful Allies Ltd, offers his tips to reduce energy costs despite the (now known) impact of COVID-19 on the market and the (as yet unknown) impact of Brexit. Positive strategies to reduce energy costs despite COVID-19 and Brexit