Energy Relief Schemes: Discounts to come from Landlords – occupiers need full disclosure

Energy Relief Schemes: Discounts to come from Landlords - occupiers need full disclosure

The Government has now confirmed details of the support being offered to commercial energy users for the 18 month period from 1 October 2022 to 31 March 2024, it is in two distinct parts.  We refer to these as Phase 1 for the 6 months ending 31 March 2023 and Phase 2 for the 12 months from 1 April 2023, with further details below along with our concerns & thoughts.

Phase 1: Energy Bill Relief Scheme (EBRS) – 1 October 2022-31 March 2022 

The Energy Bills Relief Scheme (EBRS) for non-domestic customers is designed to apply discounts to energy usage between 1 October 2022 and 31 March 2023 (‘Applicable Period’).  Initially, it limited the wholesale portion of price @ 21.1p KwH Electricity and 7.5p KwH Gas (the ‘Capped Rate’).  This does not include network charges or operating costs, so the end price is higher and does vary.  Nonetheless, the upper limit on the wholesale portion has removed a serious risk to business for the 6-month period.  The scheme works by Suppliers applying reductions to bills and so there is no need to apply for the discount.  Where applicable, the reductions should have been introduced with effect from November with October treated as a backdated adjustment.

A Landlord supplying Tenants via a main utilities’ supplier would be regarded as an ‘Intermediary’, being legally obliged to pass on (or ‘pass-through’) what is described as a ‘just and reasonable’ amount to the end user.  Also, Intermediaries are obliged to pass on full details of the application of any discount within 30 days of receiving the EBRS benefit.  Where it’s demised supply, the Landlord has clear obligations as an ‘Intermediary’.  If the fixed contract price is above the Capped Rate (subject to variation) for any part of the Applicable Period then the EBRS should apply and the Landlord should provide full details of the contract, unit rates and the impact of EBRS.  This should be done within 30 days of the benefit of EBRS scheme being received by the Intermediary.

For the service charge element, the situation should not be significantly different although some might argue that the strict requirements of the ‘Intermediary’ do not apply in the same way because the end-user might be regarded as the Landlord in providing their services to the common parts.

Phase 2: Energy Bill Discount Scheme (EBDS) – 1 April 2023 -31 March 2024

As with the original scheme, suppliers will automatically apply reductions to the bills of all eligible non-domestic customers and the conditions related to the role of an Intermediary appear to remain the same.

In terms of the support offered, it is significantly different.  Instead of a price cap, a discount is applied. This applies if wholesale prices are above a certain price threshold.  For most energy users these maximum discounts & thresholds have been set at:

  • Electricity – maximum discount 1.96p per kilowatt hour (KwH) with a price threshold of 30.2p per KwH.
  • Gas – maximum discount 0.697p per KwH with a price threshold of 10.7p per KwH.

The discount is calculated as the difference between the wholesale price associated with an energy contract and the price threshold.  The discount is phased in when the contract’s wholesale price exceeds the floor price, until the total discount per KwH reaches the maximum discount for that fuel.

What are our Concerns?

First, making sure that any monthly on-account electricity charges are adjusted to reflect the EBRS & that the delayed backdated refund for October is passed on to the Tenant.

Second, in their role as Intermediary, the Landlord is left to exercise their discretion on the ‘just and reasonable’ application of the discount.  The government’s intention on this is clear i.e. pass-through what is rightfully and properly due.  However, it is inevitable that some questionable adjustments will be made in some cases.  Here, it is important to make sure that full disclosure is sought by reference to the 30 day deadline.  Failure to adhere to this could then be met with penalties – details yet to be confirmed.

Third, many of the 2023 service charge budgets were set before either scheme was finalised.  As a result, huge increases were introduced that took no account of EBRS (with EBDS having less of an impact), being based on estimated utility rates that had reached a peak.  Accordingly, the utilities element of service charge budgets were over estimated.  One might argue that any refund would be returned in due course but that pays no regard to either (i) the hugely challenging economic situation where cash is critical and (ii) the ‘use it or lose it’ nature of budget management, especially in an inflationary environment. 

For all these reasons, an occupier must get full disclosure from their ‘Intermediary’ supplier (the Landlord) to make sure the full benefit of the EBRS & EBDS are passed through to them in a timely manner. 

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