By Sam Campbell, Head of Business Insight, SwitchMyBusiness.com
In many areas, the UK’s smaller businesses are the overlooked middle child, falling between the heavily regulated consumer sector and better resourced corporates. Energy is no exception.
A lack of time to carefully consider the options is the recurring theme. Take fixed-term energy contracts, for instance: while offering a degree of protection from price rises, these contracts are far less attractive when wholesale prices fall (as gas recently has).
Ending a contract early may incur a penalty that may be outweighed by lower bills. But taking the time to compare current deals and weigh years’ of usage against penalties is a task few can face at the end of a long day.
Unfortunately, UK small and medium-sized enterprises (SMEs) are often sleepwalking to disaster in far more basic areas. Arguably the worst consequence is the practice of ‘rollover’.
What are rollover contracts?
Rollover can happen when a fixed term contract ends, and having not heard from the customer, the energy supplier simply locks them into a new fixed term contract. As small business owners already know, long contract terms and more pressing priorities make for small windows to switch energy supplier.
While most of the ‘big six’ energy suppliers have ended roll-over contracts, the practice still continues with some smaller suppliers. Failing to tell your supplier of your intention to end a contract before the notice period, can mean that you are rolled over onto a new contract. The main difference is that suppliers are now only allowed to rollover a contract for a maximum period of one year.
But small businesses should not assume that escaping rollover gives them the best deal. In fact, the opposite is usually true; the alternative is deemed contracts/rates, which tend to be extremely unfavourable.
What is a deemed contract?
When your fixed-term business energy contract ends but you are not rolled onto another one, instead of cutting supplies, an energy provider will tend to put customers on deemed contract.
These do not have restrictive long fixed terms but the tariffs are a much higher than standard rates – Ofgem says that deemed contracts cost an average of 80% more than rates charged in a negotiated contract. According to Ofgem, around 10% of micro-businesses are on deemed contracts. (The definition of ‘micro business’ is important: this applies if you have fewer than 10 employee, turn over less than €2 million, or use 100,000 kWh of electricity or 293,000 kWh of gas per year.)
In this sense, many business energy users are actually worse off by not being rolled over, unless they take the time to compare and switch energy supplier.
But other priorities come first – recent research by SwitchMyBusiness.com revealed that: more than 30% of small businesses have been shunted onto a deemed contract and 18% have been ‘locked-in’ to a fixed-term contract without their permission.
Of course, deemed contracts are to be avoided if possible. But if you do find yourself on a deemed contract, perhaps because you have moved premises, you do have rights.
Know your deemed contract rights
As Ofgem explains, the suppliers of businesses on energy deemed contracts must:
- take “all reasonable steps” to provide you with information including the charges or fees
- provide you with a copy of the full contract if you ask for it
- take “all reasonable steps” to tell you about other available contracts
- take “all reasonable steps” to ensure that the terms of the contract are not “unduly onerous”.
- prevent you from switching to another supplier, for any reason or at any time, (i.e. they cannot object to you transferring for reasons of debt or contract)
- require you to give notice before terminating the contract or charge you a termination fee.
What has changed?
For those at risk of rolling onto another fixed-term or deemed contract the situation has recently improved: Ofgem now requires suppliers to put the end date and notice period on all bills for fixed-term contracts. Smaller businesses may not be aware that they are allowed to tell a supplier that they want to switch at the end of their deal at any time before the notice period.
Changes introduced by Ofgem on 30 April 2015 require suppliers to:
- allow micro-business consumers to give notice to terminate a contract no more than 30 days before a contract ends
- provide current prices and annual consumption details on renewal letters for micro-business fixed-term contracts
- acknowledge a termination notice from a micro-business consumer within five working days of receipt, or as soon as reasonably practical after that