U.K. Energy Regulator Finally Flexes its Muscle Over Unscrupulous Contract Renewal Practices

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Rising complaints from business electricity and gas customers have prompted U.K. energy regulator Energywatch to investigate unscrupulous practices by suppliers when renewing 'evergreen' contracts. Disgruntled customers are hoping for an outcome which affords maximum flexibility at renewal and puts an end to unfair practices which leave them tied to contracts at very unfavourable rates. Similar experiences in North America have already led to strict controls in some prominent states.

If we can offer some of the cheapest business electricity prices in the market

Automatically renewing contracts for business electricity and gas customers were originally conceived to save the inconvenience of setting up new contracts annually. Savings in administration could be passed on in reduced rates and self-renewing direct debits meant regular assured payment for suppliers.

However, growing fluctuations in wholesale prices has now led many unscrupulous suppliers to use crafty tactics at renewal locking customers into rates up to 140% higher and causing what was previously business inertia to turn to shear panic.

The U.K. is now littered with contracts where:

-90 days cancellation notice is required prior to the contract end date to avoid rollover

-cancellation is only accepted by phone which is subsequently unverifiable may discriminate

against the hard of hearing customers

-are not informed of the new rates until it is already too late to avoid the rollover

In addition, the customer is often further disadvantaged by the way in which notice of a price increase is delivered, if indeed it is delivered at all. Typically, the supplier will not give any indication of the enormity of the price increase but simply give a new figure in pence per unit which can be very confusing for the average small business. An indication of the percentage increase over the existing contract would be far more informative.

Furthermore, not receiving such a notice cannot be relied upon as an excuse to invalidate the contract. As long as the supplier has proof of posting it will be deemed to have been received.

Electricity4Business' Marketing Director Graham Paul argues that truly competitive suppliers are being locked out of a large part of the market despite offering cheaper prices and far more favourable terms. "If we can offer some of the cheapest business electricity prices in the market" says Paul "whilst maintaining the customer's choice to move should he so wish then those who are renewing customers at rates twice as much as ours should at least allow the customer to make his own decision".

But there is light at the end of the tunnel since it's often said that what happens in the U.S. is mirrored in the U.K. after a short period.

Some U.S. states, amongst them the powerful State of New York, have sought to redress the balance with evergreen contracts by imposing strict controls on their terms and conditions. New York General Obligations Law 5-903 prohibits the automatic renewal of contracts unless the customer is provided with notice by certified mail at least 15 days and not more than 30 days prior to the time specified.

The state of Alberta in Canada protects the customer still further. The first bill you receive after the contract has been renewed must clearly and prominently state that the marketing contract has been renewed and state the price you will be charged for your supply of energy. You have 30 days after receiving this first bill to cancel the renewed contract without cost or penalty.

Energywatch, the U.K. regulator, is now clearly onto the case. Following complaints from many small businesses it wants to ensure that where evergreen contracts are chosen 'that these commercial arrangements are fair and clear and do not have the effect of preventing consumers from moving supplier at the end of a contract where they choose to do so. We are concerned that this trend is having the effect of further reducing consumer choice.'

For this reason Energywatch has sent a full questionnaire to all business suppliers requesting their response to a series of questions relating to this issue along with copies of their full terms and conditions. Responses are required by early November 2006 after which Energywatch will evaluate the responses and propose a set of guidelines for suppliers which will cover supplier processes, consumer communications and contract terms.

Here is a true opportunity for Energywatch to show its teeth. Anything less than the outcomes cited above in the U.S. and Canada will surely be letting the U.K. small business down.


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