New Ofgem Regulations for Business Energy Contracts Come into Force

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Monday 18th January 2010, new regulations from Ofgem came into force which will help to protect small businesses from extortionate high contract rates due to the automatic rolling over of energy contracts.

So what is considered to be a "small" business or “micro-business” as Ofgem class these companies they hope to protect with the new regulations now in force.

How do I know if I qualify under the new regulations?

The new regulations do only apply to businesses that fall into one of the following criteria:

  • Consume less than 200,000 kWh of gas a year, or
  • Consume less than 55,000 kWh of electricity a year, or
  • Has fewer than ten employees (or their full-time equivalent) and an annual turnover or annual balance sheet total not exceeding 2m Euros

It should be noted that a business need only fall into one of the above criteria to qualify as a micro-business and benefit from the new regulations.

The new rules will only affect those businesses that entered into a new contract on or after Monday 18th January 2010. Contracts signed prior to this date will remain under the old regulations until a new contract is entered into at the end of that contract term.

How do the new rules affect my business?

The new regulations will give you and your business more protection against rolling over onto a new contract when your current contract comes to an end. Here is a summary of how you may benefit from these new regulations:

  • Before entering into a contract the supplier must now explain the key terms and conditions of the contract to the customer, and make it clear that the contract is binding

This potentially means that key clauses may no longer be hidden in the small print of the contract. The supplier must now make the customer aware of key conditions that relate to the contract and that may influence whether the customer enters into the contract or not.

  • Within ten days of a contract being agreed, or an existing contract being extended, the customer should receive written copies in plain language of the full terms & conditions and a statement of renewal terms (if the contract is of a fixed length)

Previously if a contract had been agreed over the telephone it is unlikely that the customer ever received hard copies of the terms and conditions relating to the contract and so they would probably have been unaware of the termination notice period for the contract and "roll over" clauses.

Approximately 60 calendar days (but no longer than 120 days) before the end of the fixed term period suppliers must now send customers a statement of renewal terms and details of the key terms and conditions

Included in this the suppliers must inform the customer of what will happen if

  • the customer takes no action and the contract rolls over
  • the customer prevents their contract from being rolled over

After the customer has received these renewal terms they then have what is termed a "notification window" of 30 calendar days in which they would need to contact their current supplier in order to negotiate new terms for a new contract. If the supplier offers a new deal then this must be presented to the customer in writing and valid until the end of the notice period.

If the customer does nothing within the notification window, in that they do not contact their current supplier in writing, the contract can be automatically rolled over for a maximum of 12 months. This is, of course, provided that the supplier has already given the statement of renewal terms.

Therefore to avoid being automatically rolled over into a new contract the customer can now write to their supplier at any point from when they agreed the fixed term contract to the end of the notification window. However if the customer wants to cancel the contract they should also ensure that they do so in accordance within the terms of the contract.

In effect suppliers must now make sure that the customer is aware well in advance of when they should take action to terminate the contract and what will happen if they take no action after this statement of renewal terms is received.

What Can I do if I don’t qualify at the moment for the new rules?

As the new rules only apply from 18th January 2010, any new contracts entered into after this date will fall under the new rules. However for customers on existing contracts the new rules will only come into effect when the current contract is extended or a new contract taken out.

If your contract is not yet up for renewal to avoid the risk of being caught out by being rolled over into a new contract enter your details into our Contract Renewal Reminder service.

By entering your details here will send you a reminder email, based on the information given, to remind you when your contract is up for renewal and that notice must be given shortly.

Useful Questions and Answers

What if I think I qualify as a micro-business but my supplier doesn't?

It would therefore be recommended that you speak to your supplier and make available to them any supporting evidence that you think qualifies your business under the conditions for a micro-business.

How can my current contract roll over for more than one year?

If in the terms of your existing contract the roll over period is for more than 12 months and you failed to notify your supplier that you wished to terminate the contract, within the termination notice period, then your supplier may still roll over your contract for the specified period in accordance with the existing contract. However any subsequent roll-over periods, after this one ends, will fall within the new regulations and so will be subject to a 12 month roll over period, if the customer fails to terminate the contract again. If your current contract specifies a roll over period in excess of 12 months, on your current contract, it would be advisable to set up a new contract to benefit from the new regulations when the current contract ends.

What happens if I sign my new contract through an energy broker?

Signing through an energy broker will mean that you will still be protected under the new regulations because ultimately it is the supplier that has the responsibility of ensuring that all the necessary information is provided to the customer when signing a new contract.

What else should I look for when signing a new contract?

Make sure that you have given the correct termination notice to your current supplier to terminate your contract

Ensure that you shop around for the most competitive price for the needs of your business

Make sure that you read all the terms & conditions for the new contract before committing yourself, whether verbally, online or signing a paper contract. Unlike domestic contracts there is no cooling off period.

Make sure you understand what the term of the contract is, the prices that you will be paying, are they fixed or will they vary and the key points of the terms & conditions with regard to termination notice periods etc. Keep all this information in a safe place so that you may refer to it in case of any queries or disputes with your supplier.

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