Your Business Electricity Costs Are Rising: What Should You Check?

You open the latest electricity bill and the amount is much higher than you expected.

It is tempting to start looking for a cheaper retailer or assume the business is wasting power. Either may be worth considering, but the bill needs to be understood first.

A higher electricity cost can come from a change in price, a change in how much electricity the business used, a different billing period or another charge on the bill. More than one of these can happen at the same time.

Your accounts show that the cost increased. The electricity bills help you work out why.

Start with the bill, not the total in the accounts

The electricity expense in your profit and loss report is useful because it shows the size of the cost and how it has changed over time.

To investigate that change, go back to the bills behind the figure. Compare bills for similar periods and look at:

• the number of billing days

• electricity used, usually shown in kilowatt-hours or kWh

• the rate charged for that use

• daily supply charges

• any demand, peak-time or other charges

• whether the meter reading was actual or estimated.

Not every business bill looks the same. The charges depend on the retailer, network, meter, contract and the way the business uses electricity.

The aim is to separate the parts of the increase before deciding what needs attention.

Did the price go up, did usage go up, or both?

Here is a simplified example using electricity usage charges only.

Last year, a business used 20,000 kWh at 25 cents per kWh. The usage cost was $5,000.

This year, it used 22,000 kWh at 30 cents per kWh. The usage cost was $6,600.

The cost increased by $1,600. Of that increase:

• $1,000 came from paying an extra 5 cents for the original 20,000 kWh

• $600 came from using an additional 2,000 kWh at the new rate.

The business now knows that both price and usage contributed to the increase. It can review the energy plan and investigate why usage rose.

Real bills may also include supply charges, different rates at different times or a demand charge. The same principle still applies: separate what the business paid per unit from how much it used and the other charges on the bill.

Check whether the business was doing more

Using more electricity is not automatically a sign of poor efficiency.

In the example above, electricity use increased by 10%. If production also increased by about 10%, the amount of electricity used per item may be similar to last year.

If production stayed the same, the higher usage needs another explanation.

Choose a comparison that fits the business. This might be electricity used per:

• item produced

• job completed

• meal served

• customer visit

• square metre of occupied space

• hour the business was open.

No single measure suits every business. Use one that reflects what usually drives electricity use in your operation.

Why business electricity costs may rise

Longer operating hours

The business may be open longer, running an extra shift or using the premises on days that were previously quiet. Compare the hours worked with the change in usage.

New or different equipment

A new machine, extra refrigeration or a larger air-conditioning system can change electricity use. Check when the equipment began operating and whether the increase started at the same time.

Equipment running when it is not needed

Lighting, heating, cooling, extraction systems and other equipment may be operating before staff arrive, after they leave or during quiet periods.

Maintenance problems

Dirty filters, damaged seals, poor controls or equipment faults can increase energy use. An unexplained change may justify a maintenance check or specialist assessment.

Weather and seasonal conditions

Hot or cold weather can affect air-conditioning, heating and refrigeration. Compare similar seasons where possible rather than assuming every month should look the same.

Changes in the way work is done

Staff may be using equipment differently, production may have moved to another time of day or a process may now take longer. Speak with the people doing the work before making assumptions from the bills.

Do not overlook the billing details

Check the number of days

A larger bill may cover more days than the bill you are comparing it with. Compare daily usage as well as the total.

Check for an estimated meter reading

Sometimes a bill is based on estimated usage because the retailer could not obtain a meter reading. A later bill may adjust the difference when an actual reading becomes available.

Look for a rate or plan change

Check whether the usage rate, supply charge or contract changed. The business may also have moved from an introductory offer or another pricing arrangement.

Understand demand charges if they apply

Some business plans include a charge linked to the highest level of electricity used at one time. A short period when several large items of equipment run together may affect this charge even if total monthly usage has not changed very much.

If the bill is difficult to interpret, ask the retailer to explain each charge or have an energy adviser review it.

A practical electricity-cost review

1. Gather enough bills to see the pattern

Collect at least twelve months if available. A longer period can help when the business is seasonal or weather has a strong effect on use.

2. Record cost, usage and billing days

A simple spreadsheet is enough. Add any rate, supply or demand charges that may explain the movement.

3. Add a measure of business activity

Record production, opening hours, jobs, customer numbers or another useful measure for the same periods.

4. Ask what changed in the business

Note new equipment, changed hours, maintenance issues, extra shifts or changes in the way staff work.

5. Decide what to investigate

The next step might be comparing plans, changing an operating habit, arranging maintenance or obtaining an energy audit. Start with what the evidence supports.

6. Check the result

After making a change, compare later bills and usage with an appropriate earlier period. Allow for changes in activity and weather so you do not claim a saving that came from the business simply doing less work.

Is electricity only one of several costs that have changed?

Start with What Your Profit and Loss Report Can Tell You About Business Efficiency to identify which expenses may deserve a closer review.

When might an energy audit help?

An accountant can help identify the financial movement, compare costs and consider whether a proposed investment makes commercial sense.

An energy audit is a different service. It examines how energy is being used and can identify technical opportunities for improvement.

An audit may be useful when electricity is a major cost, usage has changed without a clear explanation or the business is considering a significant equipment upgrade.

The financial information helps define the problem. The energy specialist helps investigate the technical cause.

Before investing in new equipment

A higher bill does not automatically mean the business should buy solar panels, replace machinery or upgrade every light.

First establish what is driving the cost. Then estimate the likely saving, the upfront cost and how long the investment will take to pay for itself.

The wider guide, How Your Business Numbers Can Help You Find Sustainability Savings, explains how to move from a cost change to an investigation and a business decision.

If electricity is one of several operating costs you want to understand, the Sustainability Savings Review starts with your existing business information and identifies areas worth investigating further.

Want help working out what is driving the change?

The Sustainability Savings Review uses your existing accounts, bills and business information to identify where further investigation may be worthwhile.

See how the Sustainability Savings Review works

Frequently asked questions

Does a higher electricity bill mean my business used more electricity?

Not necessarily. The price, billing days, supply charges or other charges may have changed. Check the usage figure on the bill before reaching a conclusion.

Should I change electricity retailers first?

Comparing plans may help if the price has increased, but it will not explain or reduce unnecessary electricity use. Check both price and usage.

Do I need a smart meter to review electricity use?

No. You can begin with the usage information on your bills. More detailed meter or monitoring data can help if you need to understand when electricity is being used.

Can my accountant carry out an energy audit?

An accountant can analyse costs and help assess the financial case for a change. A technical energy audit should be completed by someone with the appropriate energy expertise.