Part one: Powering down

Energy bills can be a drain on a business’s bottom line. Businesses that aren’t switching supplier could be paying more than necessary

By Adam Bernstein | Published:  04 December, 2017

Brexit is on the horizon, costs of energy are rising following the fall in sterling and an increase in taxation, and it appears that the UK’s energy generators can only just meet energy demands. It’s not hard to see why firms should be keenly aware of the impact of energy usage on their bottom line.

According to the Carbon Trust in a December 2013 document, Better business guide to energy saving,
most firms could with low or no-cost changes could bring bills down
by 10%.

Make a saving
Chris Caffery, an advisor at Utility Options Ltd, an independent energy consultancy, reckons that 95% of firms can save either on their upcoming contract renewal or their current pricing. He finds it irritating that there are still too many businesses on uncompetitive contracts or paying high non-contract prices.

From his point of view firms should understand that being “out of contract” – that is, not signed up to a deal but instead, paying standard pricing – is not a smart idea. He says: “Having no contract may give flexibility, but it also means that customers will be charged ‘out of contract’ pricing that can carry a 20-30% premium over standard tariffs.”         He explains: “Suppliers say they have to buy energy on an ad-hoc basis, paying the wholesale rates for that anticipated energy on a daily basis. They will build extra margin in to these tariffs to cover large wholesale increases. On a fixed contract, the supplier buys the energy for the whole contract at the price agreed. This way they know their margin and this can’t change for the period of the contract.”

Thankfully rollover contracts have been abolished. They were nasty and effectively trapped firms into a given supplier and tariff if notice wasn’t served in the prescribed manner.

So, when should firms give notice if they want to leave? Caffery says two to three months prior to the contract renewal is usually good timing: “The new system requires a standard 30 days but termination can be served to a supplier before this time as long as the customer doesn’t try to switch before the renewal date. Should they go past the renewal date they will usually revert to the standard tariff which they can leave at any time by giving 30 days notice.”

How to switch
Of course, it’s entirely possible to find and switch to a new supplier without any external help – especially if a customer contacts a supplier directly on the right day when rates are low or the sales department have a
target to hit so are able to reduce their margin.

From Caffery’s point of view there are better solutions than DIY. The first is to either use a broker that can obtain a better rate because they deal with suppliers in bulk. The other is to use a consultant who can do the same but adds other benefits such as bill analysis to confirm correct low rates, contract renewal notification and reminders, and non-tariff related savings such as meter downgrades/installations.

Choosing a new energy supplier
No supplier is perfect and it’s only natural that companies base their first choice on price as it’s the bottom line that matters to 99% of most firms. However, some suppliers are more customer service focused than others, but that only really matters if a problem arises. Service is, of course, where the energy consultancy or broker can help with their experience.

When searching for external help, as with most trades or service providers, there are going to be some that take advantage of their clients so an internet search could possibly be a little bit like a lottery. If the business is a member of trade organisation then it may be best to ask them who their chosen consultant is for their members. The Federation of Small Businesses (FSB) offer this as does the Independent Garage Association (IGA).



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  • Part two: Powering down 

    With rising energy bills comes the need to invest time in seeking out the best deal. While finding a new energy provider isn’t a money-making exercise, it is something that will lower costs. It is something that can be done alone, but sometimes two heads are better than one.

    This is because unlike the domestic market, the business energy supply works in a way that makes a quick online comparison not so simple. While the domestic market is largely based on location, Chris Caffery, an advisor at Utility Options Ltd, an independent energy consultancy, says the commercial market uses a number of elements that determine the tariff cost: “There is a varied mix of wholesale rates, transportation costs, government taxes and levies and, of course, profit for the suppliers. Generators still rely heavily on coal, oil and gas, so actual or anticipated costs of these fuels can create large differences in retail prices.”

    Go compare?
    Going online to make a comparison isn’t easy. There are a great many more online comparison websites for domestic energy than there are for commercial suppliers. “One of the main reasons for this,” says Chris, “is that domestic tariffs set by suppliers have a longer ‘shelf life’ usually due to a slightly higher margin placed on domestic for this very reason.”

    Other factors are considered such as credit rating (because firms are effectively borrowing from the supplier), and the length of contract (a deal may be poorer at first but over time this improves as market prices rise). Using a broker or consultant doesn’t always guarantee price transparency though; it’s not easy to compare the price that’s being offered unless there’s a change in broker, particularly if the negotiations are happening a day or two before renewal. The advice? Don’t leave negotiations until just before the renewal is due as it doesn’t give an opportunity to shop around.

    As to what could be saved, Chris offers two examples: “We’ve been helping a large motor vehicle repair specialist in Kent that employs 25 staff. Last year alone we saved 21% for that customer which equated to around £2,800 in monetary terms.”

    The second example involves another Kentish firm, a medium sized garage in Ashford. “We consistently save them around 11% over and above their supplier’s renewal prices. This saving works out at around £600 per annum.”

    Chris says that using a consultant isn’t just about the rates that are negotiated. It’s about saving time and not to having to deal with suppliers – “sometimes the extra added services can far outweigh the visual savings on the utility bills.”

    Clearly, there are a number of lessons that can be drawn. Plan well in advance for benchmarking and renewing (switching) contracts. The energy companies would much prefer customers on standard tariffs, but with some planning and effort, decent savings can be made.

    Getting redress
    In the majority of instances the energy supply relationship works out well, but where there’s a suspicion of unfair treatment, and the relationship breaks down, there is a natural inclination ask about rights of redress.

    There are two avenues of complaint open to firms who think they have been unfairly treated. All suppliers have an in-house complaints process. But having exhausted that route, the next step is to try the Energy Ombudsman to have a complaint taken further. The ombudsman can only help microbusinesses (defined as having an annual consumption of electricity of not more than 100,000 kWh, or gas consumption of not more than 293,000 kWh; or fewer than 10 employees (or their full-time equivalent), and an annual turnover or annual balance sheet total not exceeding €2 million. Ofgem doesn’t get involved with individual complaints but it does have plenty of information on its website that may prove useful.

    It is worth noting that help with seeking redress is a service that most consultants and brokers provide to customers. They take up queries with suppliers and use their contacts and knowledge to obtain a swift solution.

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