Small Talk: Rollovers don't do SMEs any favours as energy prices soar

Many contracts feature very short clauses in which break clauses must be activated
Click to follow
The Independent Online

Here we go again. British Gas and npower's announcements on Friday that they are joining Scottish and Southern in raising energy prices means three of the Big Six suppliers have announced winter cost hikes before the clocks have even gone back. Expect the others to follow suit rapidly.

For cash-strapped small and medium-sized enterprises, rising energy bills are becoming a real headache – one recent survey even suggested that as many as 8 per cent of SMEs would be forced to close by a 25 per cent increase in costs. The Federation of Small Businesses says its members' electricity bills have risen 100 per cent over the past eight years, while their gas bills are up by 125 per cent.

Consumers are paying more too, of course, but there is at least some very stiff competition in the household sector. By contrast, SMEs find it much harder to shop around for savings between competing suppliers – chiefly because of the industry's anti-competitive practices.

The biggest issue for SMEs is the way in which their energy contracts are so often automatically rolled over by suppliers. Most SMEs are signed up to fixed-price contracts with suppliers that typically last for one, two or three years. Usually, if the SME does nothing when that contract comes to an end, it is automatically rolled over on to a new 12-month deal, often at a substantially higher price.

Only the most organised SMEs avoid falling into this trap because many contracts feature very short windows in which break clauses must be activated. An SME which wants to move provider has to give notice to its existing supplier within this narrow window. And it must do so in exactly the right way, complying with often exacting bureaucratic requirements.

Miss the chance to get out of the contract and the rollover process kicks in automatically – depriving SMEs of the opportunity to move to a cheaper deal before the next renewal window 12 months later.

Ofgem, the energy industry regulator, has been aware of this issue for some time and came close to prohibiting automatic rollover in 2010. It opted not to, however, because some suppliers operate by leaving SME customers out of contract once their existing deals expire – invariably on even higher tariffs than rollover customers pay. The regulator feared many more SMEs would end up on these even higher tariffs if it simply banned rollover outright.

Not everyone agrees with that view: the SME adviser Energy Forecaster, for example, last week called for an outright ban on contract rollovers – it would be possible, it pointed out, for Ofgem to at the same time set some additional rules about market rates for customers no longer on contracts.

There have been some improvements. For example, suppliers now have to write to SMEs at least 60 days before their contracts end to advise them of their options.

Still, more could be done. Requiring suppliers to print contract end dates on every bill they send to customers (as several now do) would reinforce the message. And they could be forced to ensure renewal warnings include cost comparisons in both cash and percentage terms. Another option would be to ban termination windows, which would ensure SMEs could avoid being rolled over by cancelling right up to the last day of their existing contracts.

SMEs need to take responsibility for managing an overhead that can be reduced, but they need more of a helping hand from regulators too.

Pensions blind spot

The expensive public information campaign run by the Government to promote new private pensions rules appears to be falling on deaf ears at smaller companies.

The Association of Consulting Actuaries today warns that smaller firms have littleidea about their responsibilities under auto-enrolment.

Its survey of more than 500 small companies reveals that fewer than one in five have a detailed understanding of auto-enrolment.

Scooter maker Vmoto revs up for a listing

Coming soon to the Alternative Investment Market (Aim) is the Australian electric scooter manufacture Vmoto.

The company will announce today that it has raised just over £1.5m from investors in a placing, with Aim dealings now scheduled to commence next month.

It will also be maintaining its listing on the Australian Stock Exchange. Vmoto wants the money to expand its product base and improve its European distribution network, though the it will also use some of it to complete the latest stage of development at its manufacturing plant in Nanjing, China.

In Australia, Vmoto has a loyal following among investors attracted by its environmental credentials, exposure to emerging markets in Asia and an improving financial record.

A newly signed contract with Shanghai PowerEagle to produce the latter's electric scooters could be worth as much as A$86m (£55m).

Small business man of the week: James Ecclestone, founder, The Grown Up Chocolate Company

I launched the business a year ago – I've owned a wholesale chocolate company for 25 years, supplying top-class hotels, but I wanted to address my dependence on the hospitality sector with a retail business.

Then the idea came out of my head – we could take chocolate bars that adults loved when they were kids and give them an adult twist, with high-quality ingredients and by-hand production.

"The business has boomed – we've gone from nothing to £200,000 in our first year and we're on target to get close to £1m in year two.

In this country, we sell through independent shops and have a couple of larger contracts – with the National Trust, for example – but what's brilliant is that we're exporting 65 per cent of our production. Quality British food has a real kudos to it in many parts of the world.

"Now we're having to think about manufacturing capacity as growth continues.

"I've got a large site in Enfield and I'm also using another site in Muswell Hill [north London] – that should be enough to get us through the next year of expansion at least.