Missed Obligations Can Cost Energy and Utilities 5% of Revenue. Contract Intelligence Can Help.

Energy and Utilities companies work hand in hand to power the world around us.

To succeed and deliver for customers, these organizations must manage extremely complex commercial operations subject to strict regulatory scrutiny. Whether you’re a supermajor selling large quantities of gas or a public utility keeping the lights on in rural America, these operations are governed by contracts.

Contract negotiations are a crucial aspect of the energy and utilities industry. This makes sense – deals have to be commercially viable for both parties and follow a complex set of legal regulations; otherwise, companies risk bankruptcy and penalties  

Yet historically, less attention has been paid to making sure those contracts are fulfilled after execution. Study after study finds that missed contract obligations are a continuing source of revenue leakage for organizations across sectors, with a particular impact on contract-intensive industries like energy and utilities.

According to EY, an estimated one to five percent of EBITA is lost because organizations fail to link operational processes between contract management and payment systems.

Where revenue leakage happens

Potential sources of revenue leakage are nearly infinite, but here are a few common examples we see in the energy and utilities sector:

1. Billing anomalies:

Metering has become more complex, with rates being determined by time of day and other factors. If billing does not match with contract rates or commitments, that represents missed revenue for the utility.

2. Payment delays:

Payments that don’t comply with terms in the contract mean dollars out of the business that could otherwise be leveraged for growth.

3. Excess facilities outages:

If subcontractors exceed their threshold for downtime without penalty, utilities end up eating the costs that come with outages and customer dissatisfaction.

4. Missed price adjustments:

Contracts should be designed to accommodate energy price fluctuations. But if pricing systems can’t automatically adjust based on energy rates, then companies may face undue commercial pressure.

5. Promotions and rebates:

Organizations leverage promotions and rebates but often use legacy and manual processes to track these incentives, leaving the door open for clerical errors in tracking the associated consumption or pricing data.

Technology catches up to contracts

Poor contract compliance has long been recognized as an issue in the industry, yet has gone unaddressed because of the sheer scope of the problem: organizations may have tens of thousands, or even hundreds or thousands, of active contracts. These contracts are written in dense legal language that is difficult to digitize at scale. In other words, as the world around them grew more digital, contracts remained static, eroding value as energy and utility companies endeavored to innovate into the future.

Study after study finds that missed contract obligations are a continuing source of revenue leakage for organizations across sectors, with a particular impact on contract-intensive industries like energy and utilities.

The good news is that technology, powered by AI, is finally catching up to the challenges contracts pose.

Modern contract technology can take contract information—billings rates, reporting obligations, payment terms, etc.—and transform it into structured data that can be connected across an organization. At Icertis, we call this contract intelligence, and believe it has the potential to transform the foundation of commerce for energy and utility customers.

5 ways to improve revenue with contract intelligence

From a revenue protection lens, here are five uses cases for contract intelligence in the energy and utilities industry:

1. Track contractual agreements against actuals:

One of the most powerful use cases for contract intelligence is linking every payment transaction coming into the business via ERP or other finance systems against what was agreed to in the contract. This can include billings rates, payment terms, renewable energy credits, and other financial agreements. Anomalies can be automatically flagged for follow-up, ensuring the intent of the contract is realized.

2. Measure contract effectiveness:

Contract intelligence provides enterprise insights into how commercial relationships are performing. Organizations can regularly review the pricing strategies and trading partner performance to continually optimize operations.

3. Flag missed obligations:

Was the gas received not of the right volume or quality? Is a facility causing downtime? What are the revenue recovery measures? Are you meeting your environmental regulatory requirements? An AI-empowered contract intelligence solution can uncover this information so you can identify where leakage occurs and the steps to take to address it.

4. Avoid costly regulatory mistakes:

Energy and utility organizations cannot afford to lose margin due to fines associated with environmental or consumer protection regulations. With the right control and visibility, contracts can provide ample protection against compliance issues arising from both direct transactions and subcontractor work.

5. Negotiate the best deal:

Contract intelligence provides contract negotiators the analysis and insights they need to totally understand the dynamics in any negotiation room, arming them with data to ensure they get the best deal no matter what side of the table they’re sitting on.

Contract compliance challenges have long plagued the energy and utilities industry, resulting in revenue leakage and operational inefficiencies. However, the advent of modern contract technology, fueled by AI and contract intelligence, presents a transformative solution to these challenges. By leveraging contract intelligence, energy and utility companies can track contractual agreements, measure contract effectiveness, flag missed obligations, avoid costly regulatory mistakes, and secure the best deals. This groundbreaking technology enables organizations to optimize operations, protect revenue, and navigate complex contractual landscapes with unprecedented visibility and control. With contract intelligence as a foundation, the energy and utilities industry can embrace innovation and drive progress in a rapidly evolving world.