Franchise Contract


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Franchise Contract

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Franchise Contract

  1. 1. Franchise Contract This post is on Franchise Contract. Would be showing through screenshots the basic templates aswritten down in the SAP ISU docs. (available at First a bit on theory.In the franchise contract, the fees that a utility company must pay to the respective political entity areestablished. The utility company then obtains the right to supply energy directly to customers in thesemunicipalities and to use public traffic routes for the laying and operation of lines. Billing uses thefranchise contract for calculating the franchise fee to be paid. The franchise contract applies to only onedivision. Franchise ContractHighlighted above is the Franchise fee procedure which probably if I remember shall discuss in sometime: P
  2. 2. First about Franchise fee category, this should be same in the price and the price operand. There canbe contribution from the customer and from the company in paying franchise fee.This is to available as indicators in price operands and the price as shown below. Franchise Fee ContributionThe Customer Contribution is the share of franchise fee that is paid by the business partner.The contribution can be specified as an amount or as a percentage.The Company Contribution is the share of franchise fee that is paid by the utility company. Thecontribution can be specified as an amount or as a percentage rate in decimal form.Which form is to be used is decided by allocating the appropriate operand in the rate.Now the Franchise fee procedureGross Procedure: A fixed gross price (= Energy price + FF) is agreed. If the municipality raises the FF,the gross price for the business partner does not change. This results in a lower energy price for the utilitycompany.Gross price: $0.25/kWh (energy price = $0.20/kWh + FF = $0.05/kWh)Customer Contribution is $0.03/kWh and Company Contribution is $0.02/kWh in FF of $0.05/kWh.So say consumption is 1 kWh then Customer pays $0.23/kWh ($0.20/kWh + $0.03/kWh) and UtilityCompany receives $0.18/kWh ($0.20/kWh - $0.02/kWh). Municipality gets $0.5/kWh ($0.03/kWh +$0.02/kWh).If the franchise fee increases say $0.06/kWh,then the energy price is reduced, so that the gross price of$0.25/kWh is not affected.Let’s see an example. This is also the Amount Procedure in Germany.In the installation the franchise contract needs to be identified.
  3. 3. Franchise Contract in InstallationThe franchise fee group as maintained in the franchise contract is: Customer contribution is $3 andCompany contribution is $2. Franchise Fee Group in $In the rate steps we need to mention the franchise group as shown below: FF Group in Rate StepsThe operand defined for the customer contribution calculation and also the price allocated to this operandshould have the franchise fee radio box checked for ‘customer contribution’; same case for the operandand price for ‘company contribution’.The prices defined in the facts for this price operand should not have any price defined in the ‘history’ tab.$10/kWh is the energy price, $3/kWh is the customer contribution and $2/kWh is the companycontribution; now let’s see the billing document.
  4. 4. Billing DocumentThe energy price is ($10/kWh - $3/kWh = $7/kWh) => $7/kWh * 32 kWh = $224.Customer Contribution is $3/kWh * 32 kWh = $96.Company Contribution is $2/kWh * 32 kWh = $64.Now another franchise fee procedure as in the rate is ‘Percentage procedure without pricesummary (USA)’.It is again dependent on ‘Gross Procedure’.Here the franchise fee instead of an amount determination is a percentage. This has been maintained inthe franchise contract. Franchise Fee Group in %So percentage customer contribution is 1% and company contribution is 5%.Let’s check the billing document.
  5. 5. Billing DocumentMeter reading is 32kWh. Energy price is $10/kWh * 32 kWh = $320.Customer contribution to franchise fee is 1% => 320 * 0.01 = $3.20If we calculate Company Contribution then it comes to 320 * 0.05 = $16There’s a third franchise fee procedure in the rate ‘Percentage procedure with price summary(used in Germany for the water division)’.This talks about ‘Price Summary – PSum’ field in schema. This helps to group together billing line itemsin the bill. PSum in Schema StepsNow about the other 2 Franchise fee procedure for which I don’t have screenshots.Net Procedure: a fixed price is agreed upon. If the franchise fee is increased, then the gross priceincreases.Say Energy price is $0.20/kWh and franchise fee of $0.01/kWh then gross price is $0.21/kWh. Iffranchise fee increases to $0.02/kWh then gross price becomes $0.22/kWh but energy price still is$0.20/kWh.Maximum gross procedure: similar to Gross procedure but here the gross price is fixed at amaximum, so it can only be adjusted downwards. In addition, a maximum is determined for the FFcontained in the gross price. The maximum FF is subtracted from the maximum gross price. The actualFF is then added.
  6. 6. • In municipalities without a FF or with a lower FF the price for the business partner is lower. • In municipalities with a higher FF the gross price for the business partner does not change. However, the net price for the utility company is lower, since the municipality receives the higher FF; the utility company pays the difference between the maximum and the actual FF.So most of the scenarios I didnt try out, because my work was done by the first one itself: PAnyways do comment if any issues come up or something is wrong above :)Blog: