Alexandra Aznar on July 16, 2015
When you check at your power bill, you’ll find that the total amount owed is made up of several different types of charges. These fees differ depending on the kind of consumer (residential, commercial, or industrial), the utility, and even the state. Surcharges, riders, and demand charges are only a few of the various charges that can appear on an energy statement, although fixed and volumetric charges are always there.
Fixed charges are electricity costs that remain constant regardless of how much electricity is used. This sum is established in the monthly bill of a subscriber. Fixed charges are intended to cover the fixed costs of a utility.
Electricity bills that fluctuate depending on how much electricity is used are known as volumetric charges. The larger this component of the bill is, the more electricity (in kilowatt hours) is used. Volumetriccharges can be a collection of different aspects (e.g., fuel, energy efficiency) or they can solely cover a utility’s short-term variable expenses. The parts that make up a volumetric charge are determined by a utility’s individual rate design for each customer class.
Electricity rate design includes both fixed and volumetric rates. With rising customer interest in energy efficiency and renewable energy installations, both of which potentially reduce revenue from volumetric charges, regulators and experts have begun debating the role each form of charge should play in electricity rate design.
What is the formula for calculating fixed charges?
The fixed-charge coverage ratio divides total interest and lease expenses by the sum of lease payments and profits before income and taxes (EBIT).
In India, what are fixed costs on an electrical bill?
The Fixed Charge is used to recoup the fundamental cost of electric service, regardless of the amount of energy consumed. It is a charge for the use of Electric’s equipment, such as poles, wires, and transformers, as well as personnel, to provide members with safe and dependable electric service. Energy charges are used to recover energy utilized, whereas fixed charges are used to recover the basic costs of electric service and infrastructure used by consumers, or we can say indirectly rent for using the electrical company’s wires and poles.
The fixed charge is determined by the sanctioned load. The larger the load sanctioned fixed fee, the higher it will be.
Is the cost of power variable or fixed?
Utility bills can be categorized as both fixed and variable costs. Energy is a variable expense if a manufacturing company that is largely reliant on electricity starts to use more because its sales have expanded, resulting in a demand for more goods. However, even if a client never enters a retail business that is open 12 hours every day, the electric bill will be relatively the same. Electricity is a variable expense in the former, altering monthly as demand rises or falls in tandem with production and profit. Electricity is a fixed cost in the latter case since usage is constant and has no effect on profit. Depending on how the utilities are really used by the firm, the same classification methodologies apply to them as well.
What are some examples of fixed costs?
Rent and leasing charges, salary, utility bills, insurance, and loan repayments are examples of fixed costs. Some taxes, such as business licenses, are also fixed expenses. Because fixed costs must be paid regardless of sales volume, adding fixed costs to your small business should be avoided.
What is the difference between fixed and variable costs?
The amount of product produced determines variable costs. Labor, commissions, and raw materials are examples of variable expenses. Regardless of industrial output, fixed expenses remain constant. Lease and rental payments, insurance, and interest payments are examples of fixed costs.
What is the definition of a first fixed charge?
It is not commonplace for an asset, whether it be land or any other type of property, to have many forms of security. When there are two or more conflicting interests in a property, and two or more creditors entitled to repayment, which security takes precedence, and which creditor receives payment first in the case of the property’s sale or the debtor’s insolvency?
The law oversees competing securities based on two main factors. The first is the fundamental idea that “Floating fixed beats The second is the old adage, “Prior is time, precedence is law.” “In right, he who is first in time is stronger.
The first principle is straightforward. A fixed charge, which is a charge secured against one or more specific (i.e. fixed) assets, always takes precedence over a floating charge, which is a charge over all existing and future assets. This principle takes precedence over the assets’ chronological order; in other words, a fixed charge issued in 2020 would nonetheless take precedence over a floating charge issued in 2010.
The second concept is utilized to refine the priority question within each charge category. To put it another way, it’s a tool “When there are two or more of the same sort of charge over a property, a tie-breaker is employed. So, if a property has two fixed charges, the one that was created initially (“first in time”) will receive priority (“stronger in right) over the one that was created later. The same is true when there are two competing floating charges over a property. As a result, a fixed charge enacted in 2010 will take precedence over a fixed charge enacted in 2020.
The debenture is the sort of charge in dispute. A debenture is a financial arrangement between a lender and a borrower that is written down. Debentures are also known as debentures “Because debentures as a charge category aren’t always one or the other, there are fixed and floating charges.
The Law of Mortgage by Fisher and Lightwood argues that “A debenture usually always results in a floating charge, although it can also result in a legal charge or a fixed equitable charge. Depending on the asset over which the loan agreement is made, a debenture might create a fixed or floating charge. The purpose of the debenture will most likely be described in the debenture deed; if the debenture is meant to establish a fixed charge, the deed will provide for that within its terms, and vice versa.
If the debenture produces a fixed charge, it will follow the two criteria stated above, taking priority over floating charges and being ordered in priority among other fixed charges according to the sequence in which they were generated. Similarly, if the debenture establishes a floating charge, that charge will take precedence after any fixed charges, after any previous floating charges, but before any further floating charges.
Are you still with me? That’s good, since there’s one more consideration that will further confuse the waters.
As we’ve seen, the main rules are that (1) fixed beats float, and (2) earlier beats come after later, in terms of creating two equal charges “inflexibility Certain charges, such as those created over registered land and registrable at the Land Registry, can, however, be registered in an asset registry. The date of creation isn’t the be-all and end-all for securities like this.
So, there’s one last criterion to consider: any charges that are created over registered land must be registered with the land Registry. As a result, the relevant date for priority reasons is no longer the date of the charge’s establishment, but rather the date of registration.
This additional rule does not override the first fundamental principle, which states that fixed beats float. As a result, even if both charges are capable of registration and the floating charge was registered first, a fixed charge will always take precedence over a floating charge in terms of priority.
But what if we have two costs, one fixed and the other registrable? A case study is the simplest approach to untangle this.
Assume that in 2010, a firm named C took into a debenture with a bank named B. Following that, in 2020, C obtains a loan from a lender, L. L secures the advance by putting a legal charge on C’s property when the advance is made. The question is, whose responsibility is more important?
In this case, there are two charges at play. A debenture, which can be fixed or floating depending on the aim (and wording) of the debenture deed, is the first option between B and C. The other is a set legal charge that exists between L and C.
As a result, using the guidelines described above:
- if the debenture issued in 2010 is stated as a floating charge In other words, because the deed does not define fixed assets to which it is attached, L’s 2020 legal charge will always take precedence over B’s debenture, because fixed trumps floating.
- If B’s debenture from 2010 is stated as a fixed charge, then
- If the deed mentions existing, fixed assets to which the debenture is tied, then B’s debenture will theoretically take precedence above L’s 2020 legal charge, as qui prior est tempore potior est jure; nonetheless,
- Because both B’s 2010 fixed charge debenture and L’s 2020 legal charge can be registered at the Land Registry, the relevant date for the purposes of priority is the date on which both charges were registered.
- Priority is given to the person who registered first. This means that if B’s 2010 debenture was delayed or ignored at the Land Registry for any reason, L’s 2020 fixed charge would take precedence because it was recorded first.
The rule governing the precedence of securities may appear straightforward at first look, yet there are still dangers to be avoided. When in doubt, it’s always prudent to seek legal counsel.
FSP advises both large and small firms on all aspects of their commercial and real estate transactions, and we would be pleased to assist you with any questions you may have. Mark Banham can be reached at the following address:
What is the difference between a fixed and a floating charge?
Fixed and floating charges are used to protect a company’s borrowing. This type of borrowing is frequently done under the conditions of a company-issued debenture. Charges on a company’s assets must be registered at Companies House and may also need to be registered in another form, such as at the Land Registry for a charge on land and buildings.
A floating fee is a sort of security that is exclusively provided to businesses. It’s an equitable charge on (typically) all of the company’s assets, both current and prospective, with the condition that the assets can be used in the ordinary course of business. Occasionally, the charge is limited to a single asset class of the corporation, such as its stock.
Many businesses benefit from the floating charge since it allows them to borrow even if they don’t have specified assets, such as freehold premises, to use as collateral. A floating charge permits all of a company’s assets to be charged, including stock in trade, equipment and machinery, cars, and so on.
The floating charge has the advantage of allowing the corporation to continue to use the assets and acquire and sell them in the normal course of business. It can trade with its stock, sell and replace plant and machinery, and so on without obtaining the mortgagee’s permission again. The charge is considered to float across the charged assets rather than being fixed on any of them in particular. This process continues until the charge ‘crystallizes,’ as specified in the debenture. This includes any failure to follow the loan’s terms (non-payment, etc.) or if the company goes out of business (liquidation, etc.).
When the charge chrysalizes, it fixes on the company’s assets at the time, catching any assets purchased up to that point but ignoring any assets that have already been sold. If the charge was made before September 15, 2003, the holder of the debenture has the right to appoint an administrative receiver, whose role it is to collect the assets charged to pay off the loan. When a firm enters into receivership, this is usually what is meant. The debenture holder may appoint an administrator if the charge was created after that date.
The majority of capital originates from high-street banks, which typically issue an all-monies debenture backed by fixed charges on any assets the company owns that have a fixed charge, as well as a floating charge on all other assets. This is the best form of protection for a company’s assets that can be devised. The bank may demand more security from the directors, including personal guarantees.
What is enough fixed charge coverage?
A decent fixed charge coverage ratio is equal to or more than 1.25:1, as previously stated. A ratio of 1:1 or below is troubling, since it indicates that your company is either not producing enough money to cover its fixed costs or is barely scraping by.
If your fixed charge coverage ratio is less than 1.25:1, a potential lender may be less willing to lend you money because your company may not be able to repay it.