Ofgem regulations for business energy contracts

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The majority of small businesses in the UK are micro businesses, making up 96% of the UK’s estimated 5.7 million SMEs, and if you’re a micro business owner, there’s a good chance you’re paying too much for your gas and electricity.

An investigation from Ofgem, the energy regulator, found that the smallest businesses struggle to engage in the energy market, and so a series of regulatory reforms were put in place to protect micro businesses from ‘rip off’ energy prices.

Does your business qualify as a micro business?

There’s no single definition of what makes a microbusiness - the Office for National Statistics’ definition is slightly different from the EU’s definition, while HMRC often doesn’t distinguish micro businesses from other small businesses.

For the purposes of energy contracts though, the only definition that matters is the one set out by Ofgem, which states that, to be classed as a micro business, your enterprise must meet at least one of the below:

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

How your micro business can avoid a roll over contract

Rollover contracts are a bit of a problem for business owners – if you fail to agree new business energy contract or switch to a new supplier before your current deal expires, you may be automatically signed up for another year with your existing provider.

This type of deal is known as a ‘rollover contract’ and, to make matters worse, the rates on offer are never competitive.

The good news is, Ofgem regulations give you and your business more protection against rolling over onto a new contract when your current contract comes to an end.

Here’s how you these regulations could help your business get a fairer energy deal:

  • 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 means key clauses may no longer be hidden in the small print of the contract, and suppliers must make you aware of any conditions relating to the contract and that may influence whether you enter 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’s unlikely you would ever have received hard copies of the terms and conditions relating to the contract. This means you’d probably have been unaware of the termination notice period for the contract and any ‘roll over’ clauses.

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

Included in this, suppliers must let you know what will happen if:

  • You take no action and the contract rolls over.
  • You prevent your contract from being rolled over.

Once you receive these renewal terms, your contract will enter its ‘notification window’, which means you then have 30 calendar days in which to contact your current supplier to negotiate new terms for a new contract. If the supplier offers you a new deal, this must be presented in writing and remain valid until the end of the notice period.

If you don’t contact your current supplier in writing during this window, the contract can be automatically rolled over for a maximum of 12 months, provided the supplier has already given the statement of renewal terms.

So, to avoid being automatically rolled over onto a new contract, you need to write to your supplier at any point from when you agree the fixed term contract to the end of the notification window. If you want to cancel the contract and switch to a new supplier, you need to do so in accordance within the terms of the contract.

To make things easier, once you get your renewal notification, get in touch with our energy experts at UKPower, and we’ll handle the switch for you. Give us a call on 0800 326 5517, or leave your details here and we’ll give you a call back.

In short, suppliers must now make sure you are aware well in advance of when you need to take steps to agree to a new deal or terminate the contract, and what will happen you take no action after you get this statement of renewal terms.

What if you think you qualify as a micro-business but your supplier doesn't?

You will need to speak to your supplier and send them any supporting evidence that you think qualifies your business under the conditions for a micro-business.

What happens if you sign a new contract through a broker or energy comparison site?

If you sign a new contract through an energy broker or Ofgem approved comparison site, you’ll still be protected under the regulations because it is the supplier that has the responsibility of ensuring that all the necessary information is provided when you sign a new contract.

This also applies to signing a contract through an Ofgem approved comparison site.

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

There are few more things you need to look out for when signing a new energy deal, including:

  • Making sure you’ve given the correct termination notice to your current supplier to terminate your contract.
  • Shopping around for the most competitive price for the needs of your business
  • Making sure you read all the terms and 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.
  • Making sure you understand how long the contract last, the prices you’ll be paying and whether they’re fixed or will vary, as well as the key points of the terms and conditions relating termination notice periods, etc. Keep all this information in a safe place so that you can refer to it in the event of any queries or disputes with your supplier.

If that all seems like a bit too much hassle, give our energy experts a call on 0800 326 5517, leave us a few details and we’ll give you a call back.

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