Red tape hits business power users

Published:  20 January, 2010

LONDON: New rules intended to simplify electricity and gas contracts for businesses have created confusion and a "spaghetti junction of red tape".

Following a two-year investigation by Ofgem, not only does each supplier have a different 'interpretation' of the new rules but all but one supplier apply these only to business energy contracts entered into from yesterday. The majority of business energy customers are at the mercy of their existing terms and conditions.

Jonathan Elliott, managing director of Make It Cheaper, said: "We are getting very mixed responses from suppliers, many of whom are still trying to fathom out the new rules themselves. It would be so much simpler if, rather than just guidelines, these new rules were set out more clearly and more strictly imposed."

"Business energy suppliers each have different terms and conditions that can run to over 10 000 words in length and only allow customers to serve notice in narrow renewal windows that quietly open and close with months left to run on the contract.

"Anyone missing the renewal window is automatically denied the right to switch to the cheapest electricity supplier for at least another year.

"Our research shows that this 'rollover' technique catches out over 80% of businesses and is commonly used by energy suppliers to lock customers into much higher rates than those available to new customers/switchers," he said.

A further area of confusion is the size of business to which the new rules are restricted, should they wish to compare electricity prices.

Ofgem uses the description 'micro business' but offers several definitions. These include: businesses employing fewer than 10 people, with an annual turnover of less than 2m euros, or energy use of less than 200 000kWh of gas a year or 55 000kWh of electricity a year.

Some suppliers are rigidly applying these definitions whilst others will consider SMEs of all shapes and sizes as qualifying for the new rules.

Business electricity prices currently range threefold from around 7p/kWh to 21p/kWh and 2p/kWh to 6p/kWh for business gas prices but anyone looking to stay on the lowest prices has to be prepared to switch regularly.

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