Could your Business Save Money on Energy?

Are you locked in to an energy supply contract in which you have to accept price rises? Has your initial contract been rolled over onto a new one without your knowledge? Many fixed term contracts for power supply include a clause that allows them to do this unless you notify them otherwise within a window of months before the end of the initial contract term. This could start three or six months earlier, but if your attention was never drawn to the clause you could be unaware of it, like many other small businesses.

Government Concern and Intervention

Prime Minister, David Cameron, recently confirmed that he has been concerned about this automatic roll-over practice because it “can lock small companies into paying above market rates”. His government set up a working group to try to get voluntary agreements to end roll-over contracts. The Federation of Small Businesses is cooperating with Downing Street on the issue because a quarter of its members have been “locked into contracts with un-negotiated price increases.” 

You and your bookkeepers may or may not be aware that energy regulator Ofgem has now set new rules for contracts with micro businesses. They will apply if you have fewer than 10 full time employees, or their equivalent, and your turnover is below £2 million. If you don’t fit this category but use less than 200,000 kWh of gas or 55,000 kWh of electricity, the rules will still apply.

The terms of contracts must be fully and clearly explained before you sign up to them. They must also be supplied in writing and include a statement of renewal terms. Suppliers must ensure that customers receive a reminder of this statement not more than 120 days before the end of the contract, so that they have an opportunity to research the market and decide whether to switch or renegotiate terms.

Big Six Response

Meanwhile the energy companies are beginning to respond to the government’s concern. The first of the major suppliers, British Gas, has pledged to abolish the automatic rollover of energy contracts for SMEs this September. The next to agree were npower and SSE, then EDF Power, leaving, at the time of writing, only E.On and Scottish Power of the six largest suppliers.

If you are within four months of the end of a fixed-term energy contract, whether or not you have heard from your power supplier, it’s time to look carefully at the small print, and consider whether you want to switch, continue as before, or renegotiate terms. If you are too busy, you could ask your outsourced bookkeepers to check the contract for you and give you their recommendations.