Contracts For Difference Calculations

Contracts for difference calculations

 

Contract Proration Calculations

Overview

When adding equipment to a service contract mid cycle, e-automate can calculate the prorated base amount if your administrative options have been enabled to by default prorate equipment as they are added or removed mid cycle..

A credit can also be auto-calculated by e-automate when removing equipment from a service contract, if enabled.

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You can choose to override the base amounts or credits when adding or removing equipment. You can also choose to enable base rate proration if your options don’t automatically calculate them. In addition to prorating the base amounts and credits for equipment added and removed, you can also prorate meter group allowances for meters added or removed from meter groups mid-cycle.

For the purposes of this document, we will assume that e-automate has been configured to, by default prorate equipment when added or removed on a contract mid cycle.

 

When you are using equipment level base rates, e-automate can easily calculate the prorated base charges for equipment additions or credits for removals.

However, when you create a service contract with a single rate at the contract level for multiple equipment, e-automate needs additional information from the user when adding or removing equipment.

Contracts for difference calculations

If, for example, you have a service contract with four different equipment and a contract level base charge of $200 per cycle, e-automate does not know how the user determined the $200 amount, whether all equipment are equal, or any other method of calculation. This means when adding or removing equipment on a contract with a contract level base amount, the user is required to identify their prorated amounts for additions as well as credits.

Percentages of periods added or removed are identified for the user by e-automate. Outside contract level base amounts, e-automate, in most cases, can automatically calculate prorated base amounts for additions and removals.

 

Similar to contract level base amounts, many meters can be a member of a meter group and share a single allowance. When setting up contracts with multiple meters in a single group, you determine what your expectations are for each meter’s contribution to the overall allowance.

By determining each meters expected contribution to the meter group, you can set an appropriate allowance.

Contracts for difference calculations

Multiple member meter groups pose a challenge in e-automate when adding or removing meters during the cycles because e-automate does not know the amount of clicks any single meter contributes to a meter group.

When adding or removing meters from meter groups, you are required to identify the number of clicks each meter was intended to contribute to the meter group allowance.

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Based on the identified meter group contribution, e-automate can calculate the prorated allowance for meters added or removed.

 

You can setup contracts that have varying cycle lengths, monthly, quarterly, annual, et cetera. When adding equipment to a contract mid billing cycle, e-automate calculates an equipment level prorated base charge for the time the added equipment is on the service contract.

For example, if you have a service contract with a billed quarterly base cycle and you decide to add equipment to the contract prior to the cycle end, e-automate would prorate the equipment base charge the time the equipment was added to the service contract. When equipment is added to a contract mid-cycle, the user identifies the start date of the equipment; e-automate then calculates the equipment level base charge for only the exact time the equipment is on the contract through the end of the already billed cycle.

 

When calculating prorated base amounts, e-automate uses the average monthly base amount (AMBA) for proration calculations.

If you were billing monthly and your rate is $121, then your AMBA is $121. If you are billing annually and your annual base amount is $4,560, then your AMBA is $380. The AMBA is calculated by dividing the base rate by the number of months associated with the billing length. In the prior example, the math would be $4560/12. Quarterly rates are divided by three and semi-annual rates are divided by six.

Once e-automate has determined the AMBA, it then prorates partial months using the percentage of time added or removed on the contract multiplied by the AMBA. Percentages of months are calculated by using the actual number of days in a given period.

When proration periods are greater than a single month, e-automate uses the AMBA multiplied by the number of months, and then adds the prorated partial month portion to the sum of the number of months.

 

When calculating prorated overage amounts, e-automate uses the average monthly overage allowance (AMOA) for proration calculations.

If your allowance is 1,500 per month, then your AMOA is 1,500. If you have an annual overage allowance of 30,000 then your AMOA is 2,500. The AMOA is calculated by dividing the allowance by the number of months over which the allowance is measured. In the prior example, the math would be 30,000/12. Quarterly allowances are divided by three and semi-annual allowances are divided by six.

Once e-automate has determined the AMOA, it then prorates partial months using the percentage of time added or removed on the contract multiplied by the AMOA. Percentages of months are calculated by using the actual number of days in a given period. When proration periods are greater than a single month, e-automate uses the AMOA multiplied by the number of months, and then adds the prorated partial month allowance portion to the sum of the number of months.

 

In this document you will find several examples of equipment being added or removed from service contracts presented as cases.

Use these examples to more fully understand how e-automate proration works so you will know what to expect when adding and removing equipment on your contracts.

The ‘Per Point’ Method

In addition to proration of base amounts, the cases also illustrate how overage allowances are prorated, as well as equipment additions or removals using meter groups. For detailed instructions on the steps to add and remove equipment in e-automate see Adding and Removing Equipment on Service Contracts.

Case 1 - Monthly

Contract Details

·         Contract has a $100 monthly base and a monthly overage of 1,000.

·         Customer requires the contract to bill on the first of each month but the contract does not start until the middle of a month.

·         Contract starts January 15.

·         Contract cannot have a first full cycle because the base billing cycle is Jan 1 – 31 and the contract does not begin until Jan 15.

The first cycle is a prorated cycle from Jan 15 – 31. Subsequent months can be full cycles.

·         Dealer sets up the contract with a Start date of Jan 15 and a base billing cycle of Jan 1 – 31.

Base Proration Details

·         The first month requires a prorated base billing.

Because the contract does not start until Jan 15, e-automate does not bill for Jan 1 - 14.

·         A prorated amount is billed by e-automate for Jan 15 – 31. Total of 17 days including the 15th or 17 of 31 days.

Contract Proration Calculations

17/31 = .548387. 54.8378%

·         The AMBA is $100. The prorated amount billed for Jan 15 – 31 is $54.84.

·         If the contract ends at the end of the year, there will be no prorated last cycle.

·         If the contract continues until Jan 14 of the following year, the final base period is a prorated base period from Jan 1 – Jan 14 or 14 of 31 days in Jan., 14/31 = .4516129.

The base is $100 per month so the prorated final base bill is $45.16.

 

Overage Proration Details

·         Overage is billed in arrears so the proration of overage occurs after the first month has ended.

·         The first overage cycle is prorated by day because it only covers a partial month, Jan 15 – 31, or 17 of the 31 days in January.

This is 17/31 = .548387 or 54.8% of the full month.

·         The overage allowance each month is 1,000 clicks, this makes the AMOA 1,000.

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The allowance is prorated by e-automate by multiplying .548 times the 1,000 to calculate the prorated overage allowance of 548 clicks for the prorated period Jan 15 – Jan 31.

·         If the contract ends at the end of the year, there is no prorated last overage cycle.

·         If the contract continues until Jan 14 of the following year, the final overage period is a prorated period from Jan 1 – Jan 14 or 14 of 31 days in Jan, 14/31 = .4516129.

The AMOA is 1,000 so the prorated final overage allowance is .452 times 1,000, or 452 clicks.

Case 2 – Quarterly or greater

Contract Details

·         Contract with quarterly base and a quarterly overage.

·         Customer requires the contract to bill on the first of each month but the contract does not start until the middle of the first month.

·         Contract starts January 15.

·         Contract cannot have a first full cycle because the base billing cycle is Jan 1 – Mar 31, and the contract does not begin until Jan 15.

The first cycle is a prorated cycle from Jan 15 – Mar 31. Subsequent quarters can be full cycles.

 

Proration Details

·         The first cycle requires a prorated base billing.

Contract for Differences – CFD

Because the contract does not start until Jan 15, e-automate does not bill for Jan 1 - 14.

·         For contracts that have cycles in excess of one month like quarterly, semi-annual, or greater cycles, e-automate calculates the Average Monthly Base Amount (AMBA).

·         When a proration occurs that exceeds a month, e-automate uses the AMBA for full months and only prorates partial months using days.

·         The first cycle start date is Jan 15 so e-automate prorates the first quarter to be Jan 15 –Mar 31.

·         The first quarter proration includes two full months (Feb and March) plus 17 of 31 days in the first month, January.

·         The quarterly base is $125.

·         The AMBA is calculated by e-automate, in this example $41.66667 or 125/3.

·         Proration is calculated by multiplying the AMBA by the number of full months and then adding the partial month prorated amount.

The full month amount is $41.66667 * 2, or $83.3334 because there are two full months.

·         The partial month proration is calculated by determining the percent of the partial month that coverage is provided.

·         In this contract example, January has 17 covered days of the total 31 days in January, Jan 15 – 31. 17/31 = .548387 or 54.8387%.

·         54.8387% of the AMBA (41.66667) = $22.85

·         Add the two full months of the AMBA to the partial month proration amount.
83.3334 + 22.85 = $106.18 for the prorated period Jan 15 – March 31.

 

Overage Proration Details

·         For contracts that have cycles in excess of one month like quarterly, semi-annual, or greater cycles, e-automate calculates the Average Monthly Overage Allowance (AMOA) then uses the AMOA for full months when prorating.

·         When prorated overage cycles are less than full months, e-automate prorates by day to determine partial month percentage and then multiplies by the AMOA.

·         The contract example above has a prorated first overage cycle, Jan 15 – Mar 31.

This includes two full months, February and March as well as a partial month Jan 15 – Jan 31.

·         The AMOA is calculated by e-automate by dividing the total allowance of 3000 by the number of months in the cycle.

3000/3 or 1000 clicks per month.

·         The partial month percentage of January is also calculated by e-automate. Jan 15 – Jan 31 or 17 days of the total 31 days in January.

Contracts for difference calculations

17/31 = .548387 or 54.84%

·         The partial month percent calculated for January is multiplied by the AMOA.

.548387 * 1000 = 548.387 or rounded 548. 548 is the prorated allowance for January.

·         The two full months of the AMOA for February and March are added to the prorated allowance for January.

1000 (Feb) + 1000 (Mar) + 548 (Prorated Jan) = 2548 total allowance for Jan 15 – Mar 31.

Case 3 – Contract Ends Early

Contract Details

·         Contract with a $100 monthly base and monthly overage of 1000.

·         The contract ends early and e-automate prorates the final base and overage allowance.

·         Contract starts Jan 1.

·         January billing included base in advance, billed on Jan 1 for period Jan 1 – 31.

·         February billing includes base in advance for February and January overage.

Contracts for difference calculations

Billed on Feb 1 and is for base period Feb 1 – 28 and overage for period Jan 1 – 31.

·         March billing includes base for March and overage for February. Billed on Mar 1 for base period Mar 1 – 31 and overage period Feb 1 – 28.

·         Contract ends March 20th.

 

Base Proration Details

·         When the contract ends on March 20th the contract has been billed through Mar 31.

·         The customer paid for 11 days more than the agreed upon end date.

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A refund for billed March days left unused can be calculated by e-automate.

·         e-automate calculates that 11 days is 35.48% of March’s 31 days. 11/31 = .354838 or 35.48%.

·         The refund is calculated by e-automate based on 35.48% of the base rate associated with the equipment base rate or contract base rate. The credit is calculated to be ($35.48).

 

Overage Proration Details

·         As of March 20th, overage for March has not been billed.

The full monthly allowance for March is 1000 clicks. The contract ends before the full month is used so e-automate prorates the allowance.

·         20 days of allowance coverage was used in March.

March has 31 days so 20/31 is .645161 or 64.5161% of the 31 days.

·         The monthly allowance is 1,000 clicks, so e-automate calculates 64.5161% of the allowance or 645 clicks for the final period allowance.

 

Case 4 – Multiple Equipment and Rates

Contract Details

·                     Annual contract with annual base and overage.

·                     Contract start date is Jan 1.

·                     Contract billed in advance on January 1 for the period Jan 1 – Dec 31.

·                     Customer and Dealer agree to end contract on Aug 11 and refund the unused time as well as prorate overage billing from Jan 1 – Aug 11.

·                     Contract has two equipment items with equipment level base rates totaling $423.

·         Equipment 1 annual rate of $225.

·         Equipment 2 annual rate of $198.

·                     Contract equipment items share an annual allowance of 4,820.

 

Base Proration Details

·         Contract ends on Aug 11.

The unused base time from Aug 12 – Dec 31 is prorated by e-automate.

·         The Average Monthly Billing Amount (AMBA) is calculated by e-automate for each equipment.

·         Equipment 1 = $18.75 (225/12).

·         Equipment 2 = $16.50 (198/12).

·         The time between Aug 12 and Dec 31 is greater than one month.

The average monthly amount for each equipment is multiplied for each full month remaining on the contract, in this example four months (Sept., Oct., Nov., and Dec.).

·         Equipment 1: 4 * 18.75 = $75.

·         Equipment 2: 4 * 16.50 = $66.

·         The prorated days for August are then calculated by e-automate.

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If the contract ends on August 11, e-automate determines the number of days from Aug 12 - 31. e-automate calculates 20 days and figures 20 days represents what percent of August.

20/31 = .645161 or 64.516%.

·         The prorated amount for each piece of equipment for August is calculated by e-automate. 

·         Equipment 1: .645161 * $18.75 = $12.09.

·         Equipment 2: .645161 * $16.50 = $10.65.

·         The full month totals are then added by e-automate to the prorated month totals for each equipment.

·         Equipment 1: $75 + $12.09 = $87.09.

·         Equipment 2: $66 + $10.65 = $76.66.

·         Total: 76.66 + 87.09 = 163.76.

Contracts for difference calculations

A credit is calculated by e-automate for a refund.

 

Overage Proration Details

·         Prorate Overage allowance to end Aug 11.

·         The AMOA is calculated by e-automate to be 401.6667 (4820/12).

·         The prorated period is from Jan 1 – Aug 11.

This period contains seven full months and a partial month, 11 days.

·         The number of full months in the prorated overage period is multiplied by the AMOA. 7 * 401.6667 = 2811.667.

·         The number of days in august is determined by e-automate to be 11.

11 represents 35.4838% of August. 11/31 = .354838.

·         The percent of days in august is multiplied by the AMOA. .354838 * 401.667 = 142.5269.

·         The August prorated allowance is added with the full months allowances to get the contract prorated allowance.

2811.667 + 142.5269 = 2954.19 or 2954.

Case 5

Contract Details

·         Quarterly billed base contract with quarterly billed overage.

·         One equipment with an equipment level base rate.

·         An overage allowance of 3000 on the single metered piece of equipment.

·         First base billing, billed for period Jan 1 – Mar 31.

·         Second base billing, billed for period Apr 1 – Jun 30 with overage for Jan 1 – Mar 31.

·         Customer adds second piece of equipment to same contract on Jun 15.

·         New equipment meters are added to the existing meter group, adding an additional 3000 per cycle to the existing meter group allowance.

Base Proration Details

·         Base for added equipment is prorated by e-automate for period Jun 15 – Jun 30.

·         Equipment base rate for the full three months is $450.

·         The AMBA is calculated by e-automate = $150.

·         The prorated period is from Jun 15 – Jun 30.

Since the prorated term is less than a month, e-automate calculates based on days using the AMBA.

·         e-automate calculates 16 to which it will prorate a charge. June has 30 days, 16/30 = .53333 or 53.33% of June.

·         The base amount is prorated by multiplying .53333 * 150 (AMBA) = $80 prorated period charge.

 

Overage Proration Details

·         The overage for Jun 15 – Jun 30 is prorated by e-automate.

·         When adding the meter, the user identifies the full overage allowance for the overage period, and e-automate can calculate the prorated allowance based on dates.

·         The user sets the full allowance for the new meter to be 3000 per overage cycle.

·         The AMOA is calculated by e-automate to be 1000.

The Exposure Method

3000/3 = 1000.

·         Prorated overage period is 16 days, Jun 15 – Jun 30.

·         16 days represents 53.333333% of June. 16/30 = .5333333.

·         The percent of time covered in June is multiplied by the AMOA.

.5333333 * 1000 = 533.33, rounded 533.

·         The full allowance of 3000 for the new meter is prorated to 533 based on the prorated period Jun 15 – Jun 30.

·         Since the meters are going to share an allowance in a common meter group, the meter on the added piece of equipment is added to the existing meter group.

·         The prorated group allowance for Apr 1 – Jun 30 is the original meter group allowance of 3000 plus the prorated allowance for added meter, 533.

3000 + 533 = 3533.

·         The subsequent overage period, Jul 1 – Sep 30 the allowance becomes 6000.

Incentive Calculation in a FPIF Contract

3000 original equipment allowance plus new equipment allowance of 3000.

Case 6

Contract Details

·         Quarterly billed base contract with quarterly billed overage. Two equipment items with equipment level base rates.

Shared overage allowance of 4000 for both single metered equipment items.

·         First base billing, billed for period Jan 15 – Apr 14.

·         Second base billing, billed for period Apr 15 – Jul 14 with overage for Jan 15 – Apr 14.

·         Third base billing, billed for period Jul 15 – Oct 14 with overage from Apr 15 – Jul 14.

·         Customer removes one piece of equipment on Aug 23 and wants to prorate a refund for the paid base and the overage allowance for the removed meter. 

·         Refund for previously billed base from Aug 24 – Oct 14.

·         Prorate meter group for clicks used from Jul 15 – Aug 23.

Base Proration Details

·         Base for removed equipment is prorated by e-automate.

Prorated period Aug 24 – Oct 14.

·         Full quarterly base amount for the removed equipment is $287.

·         The AMBA is calculated by e-automate = $95.6666667.

·         The prorated period is Aug 24 – Oct 14 which contains the full month of September, the partial month of August, and the partial month of October.

·         The prorated number of days in the period in August is calculated by e-automate.

Aug 24 - 31 or 8 full days. 8/31 = .2580645 or 25.80645%.

·         The ABMA 95.6666667 * .2580645 = $24.69 for the prorated amount for August.

·         September is a full month so e-automate uses the full AMBA for September, $95.6666667.

·         The prorated number of days in the period in October is calculated by e-automate.

Oct 1 - 14 or 14 full days. 14/31 = .451613 or 45.1613%.

·         The ABMA 95.6666667 * .451613 = $43.20 for the prorated amount for October.

·         The amounts for each month, August, September, and October are summed to determine the credit.

24.69 (Aug) + 95.6666667 (Sep) + 43.20 (Oct) = 163.56.

 

Overage Proration Details

·         The overage allowance used on the contract can be prorated by e-automate up until the equipment/meter is removed.

·         The full overage period is from Jul 15 – Oct 14.

·         Since the meter was removed on Aug 23, the customer only uses a portion of the full overage period; the portion used period is from Jul 15 – Aug 23.

·         When overage allowance is shared between two meters and one meter is removed, in order to prorate the allowance e-automate relies on the user to identify the number of clicks that were designated per cycle for the removed meter per overage period.

Case 1 - Monthly

You designate 2,000 of the 4,000 allowance were attributed to the removed meter.

·         When you remove the meter, e-automate calculates the AMOA based on your designated 2000 clicks. 2000/3 = 666.6667.

·         The prorated period does not have a full calendar month.

The period contains two partial months, Jul 15 – 31 and Aug 1 – 23.

·         The July prorated percent is calculated by e-automate.

Jul 15 – 31. 17/31 = .548387 or 54.8387%.

·         .548387 is multiplied by 666.6667 = 365.6.

·         The August prorated percent is calculated by e-automate. Aug 1 - 23. 23/31 = .741935 or 74.1935%.

·         .741935 is multiplied by 666.6667 = 494.624.

·         e-automate then sums 365.6 (Jul) = 494.624 (Aug) = 860.2 rounded to 860.

·         The prorated allowance for the removed meter is 860 for the period Jul 15 – Aug 23.

·         The combined allowance for both meters on the contract is composed of 2000 for the equipment remaining and 860 for the prorated removed meter or 2860.

·         The subsequent overage cycle on the contract would have an allowance of 2000 for the remaining meter in the meter group.