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Small firms being tied to costly ‘rollover’ contracts by utilities companies

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The FPB is calling on utilities companies to state clearly on bills when contracts with commercial customers are to expire. Many struggling firms are being tied in to costly deals because their contracts are rolled over from one year to the next with little or no warning, leaving them unable to switch suppliers to save money.

"Most often, only a single letter is sent out and a non-response is taken as a business being complicit. Business owners are extremely busy and, unless notice is given within the specified time to terminate these ‘evergreen' contracts, utilities companies can just roll them over for a further year or two, sometimes at exorbitant prices. They rarely play fair," said the FPB's adviser on utilities Colin Beake, who is Managing Director of Utility Options, a utilities consultancy.

"The first thing business owners should do is contact their utilities suppliers to find out whether they are under contract. If the answer is yes, the business owner should also find out when it ends and how much notice needs to be given to cancel the agreement."

He added: "Of course, this will depend upon the individual supplier. It is inconsistent and these companies seem to make up their own rules. Some demand 120 days, or four months, others less. One supplier will only let you cancel within a certain window of time."

Research recently carried out by the FPB, which represents 25,000 small businesses across the UK, shows that 60% of respondents want a dedicated watchdog to mediate between small businesses and utilities providers. In addition to writing to Mike O'Brien, the Minister of State for Energy and Climate Change, the FPB has passed on its findings to Consumer Focus, the organisation set up in September 2008 when Energywatch merged with the National Consumer Council and Postwatch. The FPB believes that the protection offered to domestic customers should also be offered to small businesses.

The FPB is calling on the Government to force suppliers to provide evidence that they are passing on the reduction in wholesale costs to their customers within a reasonable time period. It is also urging them to consider how switching to alternative providers can be made easier and more user-friendly. This will improve competitiveness in the market and will enable small firms to save money in the current economic climate.

The main problem identified by the research was ‘unjustifiably high' energy prices, with 45% of respondents to the FPB's survey citing this as a current issue, and 68% anticipating it to be a future concern. Poor customer service is another significant problem (30% current, 23% anticipated), followed by incorrect billing (29%, 25%), difficulties in switching suppliers (22%, 17%), increased prices for water and sewerage (16%, 25%), problems with telecommunications suppliers (12%, 8%), problems with energy suppliers (8%, 11%), the failure of companies to provide a rebate (7%, 6%) and unexpected charges (10%, 7%).

"I was in a three-year contract with British Gas for my electricity," said FPB member Sally Starley of Tiny Tots, a children's nursery shop in Ashford, Kent. "They say they tried to phone me when it was coming up for renewal, but I don't believe that. I received no telephone call."

"I used to pay between £28 and £30 per month. Now it has gone up to £382 per quarter and I can't get out of it."

She added: "I'm only a very small shop. I have one heater, a few lights, a till and a credit card machine. I don't even have a computer. Apparently, prices have gone up and I was told I was on a good deal before, but how can my charges have increased to such an extent and so suddenly?"

FPB member David Williams of GW Frank, a butcher in Wisbech, Cambridgeshire, took on the energy giant npower and won. He has since negotiated a more favourable contract with an alternative supplier.

"It was such a shock to find that my Direct Debit was going up by more than £1,000 per month, which we just couldn't afford. When I told them that initially, the reply was that the price of energy had gone up and that they had been supplementing my company," said Mr Williams.

"Apparently, without your knowledge, these companies can roll you into another 12 months at any price they choose. npower said they had contacted me to tell me about the change before it took place, but I received nothing. Later, when I demanded to see a copy of the letter they had sent, one was emailed to me that was dated 8 September 2008 – five days after the price increase took place."

"Apart from that, unlike the company I am with now, I never spoke to the same person twice. In the end, they had to capitulate because they did not provide the information they insisted they had. However, I'm sure that some people do buckle and pay what they're told to. I would tell them to fight all the way."

Norwood Instruments Ltd is a member of the FPB and is based in Holmfirth, West Yorkshire. The company manufactures scientific and medical instruments. Its owner, John Dickinson, believes utilities companies should be up front about their contracts with customers.

"The renewal date is often three or four months before the contract actually ends. You usually receive a letter a few weeks before then to tell you the contract is being renewed and a date up to which you can object or otherwise, but this seems to come out of the blue and catch you unawares," said Dr Dickinson.

"However, there's only one letter and sometimes letters can go adrift in the post. They go ahead and renew the contract if they don't hear back within a short window. It's a self-serving system, as far as utilities companies are concerned."

He added: "I'd like to see the contract expiry date and renewal date printed clearly on my bill, as well as how many units I've used and environmental information."

Via Utility Options, the FPB helps its members to shop around for a better deal on utilities. For more information, call 0845 130 1722.

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