Ofgem not to ban rollerover contracts for business

The decision taken by Ofgem not to ban rollover contracts for business energy customers means a jackpot for the “Big Six” energy suppliers worth up to a Billion pounds a year, according to some sources.

The calculation is based on the typical four pence per unit difference between tariffs for commercial electricity – currently eight pence versus twelve pence – equating to around £1,000 per year for the average small business. Based on average meter types 03-04 at 32k usage per annum.

Research shows that only 20 percent of businesses know when their energy contracts come to an end and even fewer are aware that there is a deadline for serving notice to the suppliers – which often expires up to three months prior.

By missing these deadlines, businesses are automatically rolled onto renewal tariffs and locked-in for a contract which is the same duration as the original term, thereby reducing a businesses opportunity of negotiating better prices.

Although Ofgem has softened the conditions required to serve notice, the new rules do not prevent companies from being rolled and, when they do come into force in January 2010, will only apply to new contracts.

Notice required for termination of business energy contracts:

  • Eon: 21 day window anywhere from 120 days ahead of the contract end date
  • British Gas Business: between 120 to 90 days ahead of contract end date
  • Scottish Power: between 90 and 45 days ahead of contract end dateNpower: at least 90 days ahead of contract end date
  • Scottish & Southern: at least one calendar month ahead of contract end date
  • EDF: at least 28 days ahead of contract end date

Research in 2008 found that 80 percent of businesses have their contracts rolled, primarily because they do not know their contact end date. This means that approximately 960,000 businesses are paying six pence per unit more than necessary (1.2m companies x 80 percent x 32,000 units x six pence = £1,843,000,000).

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