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Electricity prices: are you getting a fair deal?

by Sara White

The soaring price of electricity is putting pressure on businesses as fixed rate deals come to an end and rolling contracts create a minefield for companies negotiating new deals. The wholesale energy price has increased by 22 per cent since January 2008 and this is driving a significant increase in bills.

The electricity market is dominated by the Big Six suppliers and there are widespread concerns that prices are far from competitive. For businesses, third party intermediaries are responsible for 50 per cent of sales and their prices are set depending on how much competition the intermediary wants to earn.

Speaking at the Business and Enterprise Select Committee Inquiry into the UK energy market in June, Electricity4Business sales and marketing director Graham Paul said:  "Despite deregulation, competition in the energy market has declined over the years and been thwarted by increasing consolidation and vertical integration. This effectively sees the largest energy companies in the UK wielding an unprecedented level of control over the market as producers as well as retailers. With price hikes of up to 40 per cent on the horizon, the situation is only going to get worse unless urgent action is taken to address the underlying issue of market competition."

"As an existing customer you could pay three times more than new customers. New business tariffs are sold as a lost leader," said Graham Paul

Energy customers could be set to pay up to 51 per cent more for their commercial electricity this year, as capped deals introduced by the leading energy suppliers draw to a close. An estimated 500,000 businesses have been paying competitive rates for their electricity since 2004, but will no longer be protected from higher prices as fixed-rate tariffs expire, according to price comparison site SimplySwitch.com.

Rising prices

Electricity4Business, a supplier of cheap electricity specifically for small and medium sized businesses, is an independent electricity retail company, targeting businesses that traditionally spend less than £10,000 per year with their current energy supplier. The company aims to cut the cost for business by offering lower electricity prices by cutting waste and bureaucracy to provide a better service at a lower price.

Electricity4Business is leading the fight against increasing energy costs for its customers and recently commissioned independent research that analysed the financial impact of rising energy bills for UK companies. The research found that one in five small UK companies of less than 20 employees were operating in ‘fuel poverty' and spending more than 10 per cent of annual turnover on energy bills.

Paul said: "Our research shows that not only are consumers feeling the pain of rising costs but so too are small businesses. Liquid wholesale markets are vital to supply competition and in turn, a level playing field with increased transparency will deliver the full advantages of market opening to end consumers and businesses alike. Ideally, we would like to see this being achieved without the need for a lengthy Competition Commission inquiry."

Evergreen contracts

Business electricity is sold on fixed-term, ‘evergreen' contracts. For customers, evergreen contracts are a double-edged sword, as they tend to be revolving contracts with long notice periods. Evergreen contracts renew automatically unless broken by the customer. In other words, businesses need to give notice in advance to avoid automatic renewals and a potential price hike.

Paul said: "After deregulation, sales to business moved on to fixed term contracts. These agreements are all sold on evergreen agreed contracts and they can run for up to five years. For example, you could have been paying 4p per kilowatt five years ago, now if you stay with your existing supplier you could be paying 14p per kilowatt. The bill could go up from £4,000 to £14,000."

The lack of transparency is apparent when you receive a price increase letter from an energy supplier; the letter says that the offer will have been deemed to have been accepted unless the customer rejects the price increase. If you do nothing, you will have entered into a legally binding contract for a further supply period at the increased rates. 

"Rising prices mean businesses are demanding and valuing greater transparency and control over their energy bills as they look to reduce consumption," said James Constant

With prices soaring, it is essential to review electricity contracts and check whether you can extricate yourself from the contract. With stiff competition for new customers, it is worth giving early notice on contracts and avoid signing long agreements. 

E4B is campaigning for simpler regulations for the selling process to create a more transparent environment. Paul said: "We need to advice customers on who the intermediaries are and how much commission they are earning."

Lost leader

"If you shop around, you can get good deals. We understand the commitment companies have to their current provider, but as an existing customer you could pay three times more than new customers. New business tariffs are sold as a lost leader," added Paul.

"The regulator's attitude is that the business sector is ‘buyer beware'. By taking the simplest steps, you can keep control of prices. For example, when you buy electricity, send in your cancellation so that you are not locked into a long contract and have the flexibility to change supplier."

E4B offers Even 12 billing for SMBs. This means customers pay the same monthly amount for electricity so they can plan yearly budgets and are not subject to seasonal variations. "We are focused on selling simple, easy to understand business products - it is all about the offering and getting a good price," said Paul.                  

Online sales

The big six:
Checking the small print

Supplier cancellation notice periods

British Gas
Written notice of at least 90 days prior to end of initial contract

EDF Energy
Written notice of at least 28 days prior to end of initial contract

nPower
Written notice of at least 90 days prior to end of initial contract

E.ON Powergen 
Notification of cancellation can be given during ‘Review Period'

Scottish & Southern Energy 
Written notice minimum one calendar month prior to end of initial contract

Scottish Power 
Written notice of cancellation at least 60 days prior to end of initial contract

Source: Electricity4Business   

Another leading independent supplier of electricity to business is Opus Energy. It has recently improved its online energy purchasing system, Opus Evolution. With volatility in the energy markets, this gives customers direct access to wholesale energy prices, so that they can decide when and how much energy to purchase.

First launched in January, the purchasing system offers an alternative to fixed price plans. Opus Energy commercial director Steve James said: "Flexibility is essential to allow companies to optimise their purchasing strategies and help control the ever increasing cost of energy."

Another independent player is BizzEnergy. Its new online accounting system gives users greater visibility and control of bills and energy usage. Customers can submit meter readings online and the information is immediately updated onto their account. Businesses that receive half-hourly meter readings can analyse data online and download it to monitor prices.

BizzEnergy COO James Constant said: "Rising prices mean businesses are demanding and valuing greater transparency and control over their energy bills as they look for ways to reduce consumption."

Counting the cost

An independent survey, commissioned by Electricity4Business, analysed the financial impact of rising energy bills for UK companies, questioning over 1,000 small companies. Here are the key findings:

• Almost one in five small businesses spend more than 10 per cent of annual turnover on energy bills with a further 22 per cent approaching the threshold
• Only 20 per cent of respondents know when their contract is up for renewal
• 51 per cent do not read the small print of their Terms and Conditions so remain unaware of their contractual obligations
• 18 per cent have no idea if they are under contract or not, and say they ‘just pay the bills'
• 32 per cent do not understand the breakdown of their electricity bills

Contact file

Consumer Council (formerly Energywatch)
http://www.consumerdirect.gov.uk/EnergySupplyandPost/
http://www.consumerdirect.gov.uk/

BizzEnergy
www.bizzenergy.com

Electricity4Business
www.electricity4business.co.uk

Opus Energy
www.opusenergy.co.uk