Business groups attack energy regulator’s u-turn on rollover contracts

Knusford based Forum of Private Business (FPB), which is, alongside the Association of Convenience Stores (ACS) and the Utilities Intermediaries Association (UIA), condemning the move, had welcomed Ofgem’s original recommendation, made as part of its probe into the energy supply market, that suppliers should not be allowed to automatically roll over fixed-term contracts. Now, energy companies are likely to be permitted to do so for up to a year at a time.
 
The regulator’s u-turn follows pressure from the big energy providers, including E.ON, npower and EDF Energy. Utilities companies say that banning rollover contracts would create additional costs for both themselves and their business customers, as the providers use those contracts to help them purchase energy many months in advance. Businesses can also incur costs if they do not renegotiate their contract on time, and could end up paying prohibitively expensive out-of-contract rates.
 
“It’s disappointing to see Ofgem stepping back from its initial stance on protection for small business customers,” said the FPB’s Chief Executive, Phil Orford. “Business owners should have as much control as possible over their utility bills.”
 
He added: “Allowing year-long rollover contracts would continue to stifle competition within energy markets. Competition will only be increased by small businesses being able to shop around for suppliers.
 
“We want Ofgem to revert to its previous commitment to end rolling contracts for all businesses with 50 employees or fewer and turnovers not exceeding €10 million, which is the European Commission’s definition of a small business.”
 
All three organisations attended an Ofgem meeting on 25 June 2009 to discuss its recommendations. The FPB and ACS are concerned that the measures outlined – including specialised contracts, better information and communication services and requiring suppliers to give 30-day notice periods to allow businesses to renegotiate contracts – apply only to micro-businesses (those employing 10 staff or fewer), and not other small business employers.
 
Recent research from the ACS reveals the need for more comprehensive protection. According to the group, one in five businesses receive inadequate notice that their energy contracts are coming to an end. Further, one in ten have received backdated bills and one in four businesses have been initially offered unfavourable renewal terms.
 
The Association’s Chief Executive, James Lowman, said: “ACS is pleased to see Ofgem moving in the right direction, but they must go further. As well as an end to rolling contracts, we want to see Ofgem change their definition of qualifying businesses to include all small businesses, not just micro businesses.”
 
In earlier research carried out by the FPB, 60% of respondents called for a dedicated watchdog to mediate between small businesses and utilities providers, for example to ensure that any fall in wholesale energy costs is passed on to customers within a reasonable time period. The FPB believes that a similar level of service provided to domestic customers should also be offered to small businesses, beyond the micro-definition proposed by Ofgem.
 
According to the research, the main problem for business owners was ‘unjustifiably high’ energy prices, with 45% of respondents citing this as a current issue, and 68% anticipating it would become a future concern. Poor customer service was another significant problem (30% current, 23% anticipated), followed by incorrect billing (29%, 25%), difficulties in switching suppliers (22%, 17%), increased prices for water and sewerage (16%, 25%), the failure of companies to provide a rebate (7%, 6%) and ‘unexpected’ charges (10%, 7%).
 
Commenting on rollover contracts, the FPB‘s adviser on utilities Colin Beake, who is Managing Director of Utility Options said: “Most often, only a single letter is sent out and a non-response is taken as a business being complicit. Business owners are extremely busy and, unless notice is given within the specified time to terminate these ‘evergreen’ contracts, utilities companies can just roll them over for a further year or two, sometimes at exorbitant prices. They rarely play fair.”
 
FPB member Jackie How runs Bella Vista, a guest house in Paignton, Devon. Tied in to a rolling contract, she has endured months of uncertainty as Utility Options negotiated, ultimately successfully, with British Gas for a more favourable tariff.
 
“Rollover contracts mean a very high energy bill – I’m assured at least half as much again as it should be,” said Mrs How. “I have managed to secure a better tariff, by changing my meter to a different type, but I don’t think they [roll over contracts] should exist at all.”
 
Small businesses are offered protection from the big energy companies via the FPB and Utility Options, which can help them to negotiate contracts and shop around for a better deal. For more information, call 0845 612 6266, or click www.fpb.org.

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