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Energy opportunity opens for small businesses

18 January 2010

Small business owners looking to reduce their energy costs have a new opportunity with changes to contract and pricing regulations that come into effect today, 18 January – but they must make the first move to secure the savings.

A review of the retail power market by regulator Ofgem in 2008 revealed that many small – or “micro” – businesses were not being given sufficient information about the terms and conditions of their energy agreement which would enable them to make a more cost-effective decision when choosing a supplier.

Micro-businesses employ fewer than 10 people, with an annual turnover of less than €2 million, or energy use of less than 200,000 kWh of gas or 55,000 kWh of electricity a year.

Ofgem found many were unaware of issues such as notification procedures and were often automatically moved onto a new contract, usually with an increased tariff, at the end of their fixed-term supply agreement – without their knowledge.

Although the “big six” energy companies – British Gas, EDF Energy, E.ON UK, npower, Scottish and Southern Energy and ScottishPower – all increased prices at roughly the same time and by similar amounts over the last year, consumers have been faced with different prices depending on the method of payment.

Neil Anderson, partner at Ledingham Chalmers LLP, Aberdeen, explained: “The regulator concluded that suppliers could do more to protect and offer greater benefits to customers, and set out a number of proposals aimed at providing better deals to suit the domestic and small business market." Today's reforms were "intended to provide more information and make it easier for consumers to shop around and negotiate tariffs".

Duty to inform

Suppliers now have to give micro-businesses more information on key terms and conditions before they enter into a contract. Companies signing up to a new deal should receive hard copies of the full terms and conditions, and a statement of the renewal terms if the contract is for a fixed term, within 10 days of their supply contract being agreed or extended.

Customers must be contacted a minimum of 30 days before the termination window ends, with an explanation of contracting options available going forward, including how to stop automatic contract roll-over.

Contracts can roll over automatically but only for a maximum period of 12 months, and the roll-over can be cancelled if the customer gives notice before the end of the termination window.

Mr Anderson added that while the new rules apply to all new contracts, they will not apply retrospectively – so customers on existing agreements will need to wait until their current deal ends before the changes can take effect.

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