A guide to energy contracts for micro businesses

The UK’s smallest businesses struggle to engage in the energy market according to industry regulator, Ofgem.

05 September 2015

This is despite reports from the Forum of Private Business that state the rising cost of gas and electricity is a concern for 87 per cent of UK businesses.  

Whilst it’s not difficult to understand why some of the most resource-strapped businesses don’t engage in energy saving, the fact is that rising prices are forcing this into the forefront of business owners’ minds. 

In this post, we’ll look specifically at the whats, whys and wherefores of business energy contracts for micro businesses and advise on the best way to manage this to make savings.

Do I have a micro business?

The majority of small businesses in the UK are classed as ‘micro’ sized. When it comes to energy, Ofgem regulations state that in order to be classed as a micro business, a customer must satisfy at least one of the following criteria:

  • Have less than 10 employees and an annual turnover, or annual balance sheet total, of less than €2 million. 
  • Consume less than 293,071 kWh of gas a year
  • Consume less than 100,000 kWh of electricity a year

If you’re running a micro business, the likelihood is that there’ll be no dedicated member of staff to look after energy procurement. Instead, it’s more likely to be down to the business owner or office manager to take responsibility for purchasing energy.

So with a dearth of prior-knowledge about the world of energy, let’s take a look at what micro business owners need to know to effectively manage their energy contracts for the best possible deal.

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What’s the difference between a business and domestic energy contract?

As a general rule, business energy contracts tend to be provided for a fixed term, whereas domestic energy contracts tend to be on a rolling basis. 

There is also rarely a ‘cooling off’ period for business energy contracts so if you’re purchasing business energy it’s imperative to ensure you fully understand the terms and conditions before signing up for anything.

One thing that has been a point of concern for some business energy customers in recent years was the tendency for suppliers to let business energy contracts simply ‘roll-over’ rather than notify their customer that the contract is drawing to a close.  This changed in January 2010, when Ofgem put in place a number of controls for energy suppliers when dealing with micro businesses. 

What are the special conditions of supply to a micro business? 

In response to some concerns over the level of engagement in the energy market by micro-businesses, Ofgem took steps to essentially make it easier for the two to work together. These steps included:

Plain language: as we’ve previously mentioned in this article, energy contracts for the country’s smallest businesses are typically dealt with by personnel who are not necessarily ‘au fait’ with the industry. For that reason, Ofgem dictate that all terms and conditions of the energy contract must be set out in writing and be ‘drafted in plain and intelligible language’.

Information: to allow micro businesses to get a handle on their energy procurement, suppliers must draw up a ‘Statement of Renewal Terms’ to clearly state when the contract begins and ends. This must include a notice period for termination of the contract that is no longer than 90 days. In addition, they must issue a reminder to their customer that their contract is due to expire 30 days before the ‘Relevant Date’ (the date which is at least 30 days, and no longer than 90 days, before the fixed term contract is due to come to an end).

Renewal cap: in the instance that a micro business customer allows their contract to roll-over, the duration of the extended fixed term period may not exceed 12 months. 

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How can I prove to my supplier than I am a micro business?

Under the UK strictures for supply to micro business consumers, energy suppliers must take all reasonable steps to determine whether their customer falls under this classification. If so, they must draw up a ‘Micro Business Consumer Contract’ in accordance with the aforementioned regulations.
 
Despite this, proving their micro business status to an energy supplier can be a problem for some small enterprises. To determine whether your business  qualifies for micro business status, your supplier will need information about:

• The number of employees that currently work for the business (full-time equivalent)
• The company turnover 
• The typical energy consumption 

If you believe your company is a micro business but your supplier disagrees, you should always approach them with the supporting evidence that you do actually qualify. This should include information regarding the above criteria. 

What do I need to look out for when switching my energy contract? 

One of the most important pieces of knowledge to be equipped with when shopping for an appropriate energy contract is what your business’ annual energy consumption is. Providing your supplier with regular meter readings can help you to understand what this level of consumption is and ensure you’re only paying for what you’re actually using.

Speak to your current supplier and ask them if they have any better or more appropriate energy deals for you. If they do, then not only could you save money with your current supplier, but you have something to use as a benchmark when reviewing deals from other suppliers. 

Finally, always make sure you go through the terms and conditions thoroughly with your new supplier to gain a good understanding of the ins and outs of your contract.  For example, you should ensure you know how long your notice period is to let your supplier know that you want to switch. For most business energy contracts there will be a specific period when this is allowed.

Gazprom Energy is a leading and award-winning business energy supplier, helping thousands of small businesses manage their gas and electricity contracts. To find out more about what we can offer your business, visit the homepage or call us today on 0161 837 3395. 

The views, opinions and positions expressed within this article are those of our third-party content providers alone and do not represent those of Gazprom Energy. The accuracy, completeness and validity of any statements made within this article are not guaranteed. Gazprom Energy accepts no liability for any errors, omissions or representations.


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