The Big 6 Energy companies are hiking the prices for Small and Medium Size enterprises (SMEs), with electricity rising 100% and gas 125% in just the last eight years. Why is the government allowing the Big 6 Energy companies to gamble with the fate of British SMEs?
The Wild, Wild West
The SME energy market is something of a wild west. The regulator Ofgem has never quite got to grips with the business angle of its remit. Some of the more egregious practices include:
If a new business moves into an existing commercial premise on a business energy tariff, they become liable for Deemed Rates until they have completed negotiations and set up their own account with the same or a new supplier. These charges are up to 165% more expensive for electricity and 309% more for the standing charge.
Energy companies often provide bills based on estimated usage, checking the meters at regular intervals to amend bills as necessary. The subsequent charge for a discrepancy in the supplier’s favour is a ‘back-bill’. For a domestic customer, the maximum an energy company can ‘back-bill’ is 1 year. However, for SMEs the maximum is 6 years. These bills can be thousands of pounds, and spell crisis for a small business. In 2011, almost 2,000 small businesses called government-backed helpline Consumer Direct to complain about receiving such bills.
Energy companies have been operating automatic roll over contract renewals, which lock the small business into a fixed contract of between one and three years, at un-negotiated prices. Just under 50% of small businesses find themselves in such contracts.
Contract Notice Periods:
Energy companies can be opaque about Contract End Dates and Notice Periods. This information is not required to be on a customer bill, creating more chance that a business will fail to plan for its Contract End Date. Planning is crucial as Notice Periods can range from 28 to up to 90 days before the contract expires. This means for some customers, if they have not renegotiated a new deal three months in advance of the end of their current contract, they go straight into the Roll-Over.
However, all this may change. David Cameron issued letters to energy companies calling for action on Roll-Over Contracts.
In addition, the regulator completed a non-domestic energy Retail Market Review, earlier this year. Ofgem is building standard behaviour requirements into the supply licenses which allow energy firms to operate. Ofgem wrote to energy companies in June this year stating its intentions. Key changes include:
- Extending definition of Micro Businesses (which receive protections closer to domestic consumer) to any business that spend £10k a year on energy (up from £5k).
- The maximum period for Back-Billing will be limited to 3 years for electricity and 4-5 years for gas
- A one year limit for roll-over contracts.
- Establish rules which mean a customer can leave their contract at any time during the Contract Period.
- Energy companies must include important information such as Contract End Date and Tariff Charged on the customer bill
- New rules for Energy Brokers to bring an end to the provision of misleading advice to business customers
Ofgem estimates that an additional 160,000 businesses will be included in protections offered by expanding the Micro Business eligibility.
While the Big 6 (except EDF) have announced they will be ending Roll-Over Contracts, the practise isn’t scheduled to end until between June and November 2014, meaning customers will still be falling into these contracts for another year. Furthermore, all suppliers will automatically roll over customers onto new rates between 35-40% higher than market prices, if the customer misses their renewal period.
The bottom line is that small businesses, and the economic recovery, are being compromised by ever increasing energy prices. This is reflected in the sentiment of small business leaders, with 71% of SME decision makers feeling the government is not doing enough to get a better deal from their energy supplier. And while Labour leader Ed Miliband has made bold statements on freezing energy bills for domestic consumers, he has made no such commitments on behalf of small business.
For the foreseeable future, the onus remains on small business to find better ways to source more reasonable energy prices, by being savvy and fickle customers.
This article was commissioned by Love Energy Savings. Love Energy has been trying to help UK SME’s for 7 years, find and source, and switch to better energy suppliers. They provide one of the only Business Energy Online Comparison services, allowing small businesses to check competitor rates online.
Scriptonite Daily is a citizen funded news site. If we want to make an alternative media, then we need to build it. Your donations make the difference.
Become a regular subscriber here