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In the 1990s, the energy industry was deregulated allowing domestic and business customers to choose their preferred energy supplier. Business energy is sold in one, two or three year contracts, domestic energy is not. Nearly two million small business customers (SMEs) now have the freedom to choose their energy supplier. Business owners can now choose from any supplier in the UK.
Switching suppliers does not mean laying new cables or digging up the street. Electricity and gas will be delivered to the customer's premises in the same way as it does now. If a customer has a problem with their meter, cables or other equipment, they can call the emergency number provided by their new supplier and the level of service received for emergencies will not be affected. The only change to the customer is that the new supplier will now invoice the customer (at a cheaper rate).
THE ‘BIG 6' ENERGY SUPPLIERS
So who can you choose from? The market is dominated by six major players. They are:
BRITISH GAS – Trading as Scottish Gas in Scotland. Part of the Centrica Group.
SCOTTISH POWER – Now owned by Spanish Company, Iberdrola. Includes Manweb.
SCOTTISH & SOUTHERN ENERGY – Includes Swalec/Southern Electric/Scottish Hydro Electric/Atlantic Gas & Electricity.
EON – German owned. Includes Powergen/Economy Power/Norweb/Eastern Electricity/East Midlands Electricity/Independent Energy.
NPOWER – Includes Midlands electricity/Yorkshire Electricity/Northern Electric.
EDF – Electricite de France, French state owned company. Includes SWEB/Seeboard/London Electricity.
And then that are some other, smaller, suppliers that you will hear about from time to time:
OPUS – Smaller supplier based in Northampton.
CORONA ENERGY – London based gas supply company.
CONTRACT NATURAL GAS (CNG) – Small Harrogate-based gas company.
Plus the likes of: ELF, Gazprom, Shell, Total and Haven.
WHAT INFORMATION DO YOU NEED TO SEARCH FOR A COMPETITIVE QUOTE?
There are three basic pieces of information supplier, brokers or price comparison services will need to know in order to give you a quote. These are:
1. Who your current supplier is an estimate of your annual consumption - you can usually find information related to consumption on a current bill.
2. Your current contract status – ie if you are in a contract and, if so, when it expires.
3. Your Supply Number – commonly called an ‘MPAN' for electricity contracts or an ‘MPR' for Gas.
The supply number identifies a customer's supply details and is required to allow a customer to transfer their electricity supply from one supplier to another. The supply number can be found on previous bill and shows a unique meter reference number (10 digit 'MPR' for business gas or a 21 digit 'MPAN' will start with an 'S' for business electricity) which is needed to confirm consumption. It also explains what kind of meter you have, which supply area you are in and what kind of electricity/gas user you are. It ensures that any quote you receive has the correct energy prices.
BUSINESS ENERGY PRICING MODELS
Energy (both gas and electricity) is measured in kilowatts and priced in kilowatt hours (kWh). Most business energy bills will also include a standing charge, climate change levy, VAT and when appropriate will also include a capacity charge and/or reactive charge. Climate change levy has been revised several times since it was introduced in 2001 and currently stands at 0.47p/kWh for electricity and 0.164p/kWh for gas. VAT on business gas and electricity is charged at 15%
Business are usually on Evergreen – or rollover -contracts, meaning that unless the business serves notice to leave the supplier, they will be automatically rolled over year on year to increased rates. Unlike gas, where all units used are charged at the same rate regardless of when they are used, electricity can often be charged at different rates depending on the time of day, time of week or month of the year.
The role of a broker is to find the best price that helps cut costs for each business customer and makes it easy for them to switch supplier. A broker should always offer this service for free because it will receive a commission from the supplier for introducing new customers. The best price is based on cutting the cost off the customer's latest contract renewal price from their current supplier, rather than the price from an old contract several years ago. Deals will change day to day dependent on suppliers and what they are paying for wholesale energy. Make It Cheaper, for example, not only searches the whole of the supplier market to give the customer the best possible price available that day but some suppliers will provide it ‘special' cut price rates which are then passed onto customers.
Eighteen months ago Ofgem - the energy industry regulator - launched its supply ‘Probe', an investigation into the markets for electricity and gas supply. Top of the agenda for small businesses was rollover contracts (which automatically renew without a signature). You may have heard these also being referred to as ‘assumptive renewal' or the slightly misleading ‘evergreen' contracts (absolutely nothing to do with being green but all the emphasis on being for ‘ever'!).
Unlike household energy contracts, nearly all gas and electricity for business contracts are evergreen, meaning they automatically renew themselves if you don't terminate them with a letter of notice. Some business electricity and gas suppliers renew more than 90% of their customers in this way, rolling them over on to new not-so cheap energy prices when often the customer is unaware this is happening.
The core issue is not the existence of rollover contracts but the way in which Ofgem has allowed the business electricity suppliers to use them. Some business electricity providers take advantage of a lack of awareness among small businesses about how the contracts work, disguise the renewal reminder as junk mail and all have different rules for serving notice.
However this and the other the issues affecting the way small businesses buy their commercial energy have been around for a long time. Newspapers such as the Daily Telegraph and the Mail on Sunday have been reporting the issues and even campaigning on behalf of business consumers for years. We too have been campaigning since year dot – which for us was early in 2007. In September of that year we co-hosted a 'rollover roundtable' with Mark Prisk MP, the Shadow Business Minster and was attended by all the ‘Big 6' business electricity providers, energywatch (the watchdog now absorbed into Consumer Focus), the Federation of Small Businesses and Philip Davies, a director of Ofgem. Davies summed up the dilemma facing SME energy customers at the meeting by saying: “Some businesses are getting a good deal and others are not. Being a passive customer means that, as the years go by, you are much less likely to get a better deal than an active customer.”
The roundtable meeting coincided with the results of a customer satisfaction survey of over 2,400 small firms, revealing that none of the Big 6 business electricity providers even reach a ‘satisfied' rating for. It was concluded that the following recommendations should be adopted and accelerated by Ofgem:
• Clear access to business electricity prices (as in domestic market)
• Code of conduct for all business electricity price comparison intermediaries
• Commercial electricity contract terms to be fairer, more consistent and less ambiguous
• Challenge current rules to close certain loopholes which deliberately complicate the process of switching to retain
customers.
So the Probe was launched the following February (2008) and, between then and now, there have been a series of announcements and periods of consulting from the Regulator. The changes, which Ofgem proposes, are due to come into force on 1st January 2010 but, in our opinion they do not go far enough. Furthermore in Ofgem's own words, the changes “…would not entirely eliminate the risk of potential consumer detriment as a result of the automatic contract rollover.” We also think the proposed changes are in danger of creating more confusion in the market because they:
• Fail to properly address rollover contracts
• Waste a rare and perfect opportunity to standardise all the suppliers' Terms & Conditions
• Do not apply retrospectively so will only relate to business contracts fixed from 2010
If the contract terms relating to the renewal process were simplified, standardised across all suppliers and applied to every existing contract, businesses would at least have a much better chance of knowing where they stood when confronting their business electricity costs. Anyone can write to Ofgem to lobby for this to happen and, indeed, we have been encouraging small businesses and their representatives to do so. It takes more than one voice to represent an industry but thankfully we are not alone in thinking this.