Guest post by James Newhouse who works alongside PowerExperts.co.uk
When it comes to business gas or business electricity suppliers, there is a serious pitfall that both SME and larger organisations can become victim to – the ‘rollover’. Many do not realise when their business energy contract is up for renewal and do not realise that if they do not act to renew their contract or change supplier at the end of their contract, it can be ‘rolled over’ automatically at less than competitive rates. In fact, in a lot of cases, a rolled over contract can result in a 40% price hike or more according to this parliamentary report:
Average Prices: Current Price Rollover Price Switching Price
Business Electricity 9.3p/kWh 14.25p /kWh 10.15p/kWh
Business Gas 2.5p/kWh 4.5p /kWh 2.9p/kWh
The average SME spends £2580.67 per month on their business energy electricity bills if the average unit price for an SME is 9.3p/kWh with an average standing charge of 22.35p per day – the standing charge accounts for £670.50 of this. If this contract is rolled over onto "out of contract" rates, there could be a monthly spend of £2926.87 on electricity alone, not including the increased daily standing charge. That’s already a 13.4% increase for electricity without even considering the gas hike. And even though you rolled into this new contract without intending to, you will be locked in until the next renewal / expiry date (12 months or more) unless you want to pay a hefty mid-contract termination fee. Businesses are therefore inadvertently committed to the increased rate until the end of new contract.
In order to avoid your contract automatically rolling on, you need to renegotiate your contract or transfer to a new supplier before it is too late. The biggest complication for any business is knowing the restrictions your current contract can have on switching. It is essential you are aware of all of the terms and conditions of your current energy provider.
Ofgem have released advice for firms on how to understand business energy contracts, warning that it is vital to understand them to keep in control of business energy spending. Ofgem’s business energy contract guidelines include hints and tips such on how to avoid being ‘rolled over’ including:
- Make sure you have a duplicate of your contract – For micro businesses, energy suppliers must directly send you a copy of your contract terms and conditions. For larger organisations, your supplier must ensure that you are able to see a copy of the terms and conditions, but request to have a copy made and sent to you in addition to this.
- Know when your contract ends – Make a note of the date at which your contract begins and ends as well as the valid notice period in which you are able to switch. Put these dates in your business calendar and set up online reminders to ensure you do not miss the opportunity to switch at the end of your term.
- Know the difference between renewal and notice periods – You should be aware that the terms in a residential and business energy contract are different. Residential contracts can be fixed or variable whilst business contracts are always fixed term. Make sure you are fully aware of the exact window in which you can notify your supplier about switching your deal. You must send a written notice to your supplier to terminate the contract if you are planning on switching to a cheaper supplier. Click herefor example letters.
- Understand what will happen if you don’t switch or sign a new contract – If you are a micro business and your contract rolls over, the new contract can be up to one year and the rates of your terms can increase without notice. If you are a larger company then the supplier can commit you to a new contract that is longer than one year! Make sure you understand in advance what your company will be subject to in the case of a rollover.
If you are not ‘rolled over’ by your energy supplier at the end of your contract, you could still be charged at a higher rate for the energy you use thereafter, due to contractual obligations. So beware!
This information was provided by James Newhouse who works alongside PowerExperts.co.uk , where you can get free advice and information about getting cheaper prices for business utilities and supplies for commercial organisations in the UK.
FSB News Release
ReplyDeletePR 2013 03
Issue date: Friday 25 January 2013
FSB supports a Bill to end energy contract rollovers
The Federation of Small Businesses (FSB) is supporting the Micro Business and Energy Contract Rollover Bill, tabled by Caroline Lucas MP and set for its second reading in the House of Commons this Friday (25 January 2013).
The Bill aims to tackle the practice by energy companies of rolling over contracts and locking small firms into un-negotiated and often more expensive terms for a full 12 months. If passed it would limit this to 30 days, helping to deliver a fairer energy market for micro businesses.
FSB research has found that one in four small firms had been rolled over without their knowledge and an overwhelming 82 per cent of respondents said they would support the abolition of rollovers.
John Walker, National Chairman, Federation of Small Businesses, said:
“Micro firms – those with fewer than 10 employees – are often unaware of the terms relating to contract rollovers. The FSB believes this is being used to unfairly lock micro businesses into unfair contracts.
“The smallest firms need much more protection from these unfair practices. It is something which Government and Ofgem must tackle to give small firms a better deal at the hands of the big six energy companies. We will be looking for a firm assurance from the minister on Friday that he will direct Ofgem to tackle the issue of micro business rollovers once and for all.”
Caroline Lucas, MP for Brighton Pavilion, said:
“With the rising cost of energy now a make or break issue for many small firms, it’s time to hold the energy giants to account for the damaging practice of contract rollovers that delivers a bad deal for micro businesses.
“It’s deeply unfair that, while micro businesses often consume products and services in a similar way to domestic consumers, they do not enjoy the same level of regulatory protection.
“This leaves them vulnerable to being ‘rolled over’ from their current energy contract into a new one without their knowledge – making it impossible for them to negotiate a better deal for another 12 months.
“Back in 2009, Ofgem gave indications that it would tackle the issue of rollovers once and for all, but caved into pressure from the big energy lobby at the last minute.
“My Private Member’s Bill is about asking the government to act to ensure the energy regulator finally delivers on its promise – and stands up for the UK’s micro businesses.”
ENDS
Notes to editors
The FSB is the UK's leading business organisation with around 200,000 members. It exists to protect and promote the interests of the UK’s Real-Life Entrepreneurs who run their own business. More information is available at www.fsb.org.uk
Thanks for this fabulous information. This really helps.
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