Small businesses blast utilities companies in new research

  16 December 2010    
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Small businesses have blasted the levels of customer service provided by utilities companies, new research from the Forum of Private Business has revealed.
 

A third (33%) of business owners surveyed by the Forum describe standards of customer service as ‘poor' or ‘very poor'. Many cite contractual issues – including the practice of rolling businesses over on to often more expensive contracts with little warning.

Just 11% believe utilities contracts are easy to understand, 35% think it is difficult to switch suppliers and 40% feel that contractual terms and conditions are ‘poor' or ‘very poor'. Almost half of all respondents (47%) are concerned that utilities costs are too steep.

"There must be better protection to stop the erosion of service provided by utilities companies to commercial customers, particularly after the demise of Energy Watch and then Consumer Focus," said the Forum's Chief Executive Phil Orford. "Ofgem does not have the necessary powers to protect all small businesses and, unless we establish proper levels of service and transparency which allow them to make informed choices, they will continue to suffer at the hands of utilities providers."

He added: "At the very least protections that have been introduced for micro businesses should apply to all small businesses. There is absolutely no evidence that SMEs with more than 10 employees are better equipped to handle issues with utilities companies."

Business owners are often given only a small window in which to shop around for energy suppliers, and penalty fines can subsequently be imposed for breach of contract.

While 69% of respondents believe it is difficult to keep track of contract anniversaries some think it is relatively easy but struggle with short notification windows for switching,

In all, 35% of respondents are unsure when their contracts end and 31% rely to some extent on the arrival of a renewal letter in order to begin the process of comparing their current providers with the rest of the market.

Roll-over contracts

A total of 42% of businesses surveyed by the Forum have been caught out by ‘roll-over' contracts, mainly energy contracts but also those from water companies.

Forum members cited reduced profitability resulting from rising costs as the main impact of being rolled over, often on to more expensive deals. Others reported significant cash-flow issues, stress and time wasted by unsuccessfully fighting roll-over contracts.

Green taxes, domestic and commercial customers

Several business owners contrasted the rights of businesses to those of domestic consumers, indicating the lack of protection for business customers.  This is not just related to energy supply but also water following the introduction of surface water drainage charges in 2008.

In all, 73% of business owners believe that they will bear the brunt of any increase in green taxation, with the price rises not seen as proportionate with those for domestic usage. Just 2% think that they will be treated fairly and the rest are unsure. 

Micro businesses and other small firms

Under the regulator Ofgem's new utilities licensing condition 7A, many micro businesses (those with fewer than 10 staff) are afforded greater protection than other smaller firms. For example, they can be rolled over for a year only.

Unsurprisingly, the Forum's research shows that micro businesses are less dissatisfied with utilities providers than other small businesses.

At 65%, fewer micro businesses find it difficult to keep track of contract dates compared to other small businesses, for which the figure is 76%.

Utilities solutions?

A significant 96% of business owners want greater protection from utilities providers, 75% called for more transparency in billing, 73% want a reminder of the contract end date added to their bills and 63% would like contract termination terms standardised to allow them to plan ahead and avoid being rolled over.

A total of 58% of respondents would welcome the ability to dictate payment terms if suppliers make errors, and 55% would like greater compensation provided to firms for mistakes.

Just 39% want an explanation of key contract terms to be provided from the beginning, indicating that business owners are most concerned with the small print rather than the key elements of contracts.

Business owners' remarks included concerns that utilities staff can appear to be reluctant to provide information about contract dates.

In all one in five (21%) respondents need specialist utilities support services but just 16% have a formal process in place for seeking out better deals.

 "A review of the scope and function of Ofgem is welcome but it is disappointing that domestic customers have more safeguards in place than business customers," said the Forum's Utilities Adviser Colin Beake, of Utility Options. "Business owners also suffer from doorstep mis-selling, meter errors, roll -over contracts with inadequate warning and rising costs, but are not given the same support.

"Small businesses should be able to expect full, clear and accurate information in their dealings with utilities companies. Contract information, such as the end date, should be made clear and not shrouded in secrecy. That is not happening and many are paying the price in the form of spiralling costs."

Overall, the Forum is calling for:

- The contractual relationship between utilities providers and business customers to be rebalanced so that the system is fairer and more transparent. This would allow for the proper use of roll-over contracts to help future planning, rather than the unfair imposition of them on many small businesses.

- The Ofgem investigation of domestic utilities prices broadened to consider business customers – particularly small firms with less purchasing power.

- Ofgem's Condition 7a should be extended to businesses with less than 50 employees because there is no evidence that businesses with 10 or more employees are able to cope better with utilities issues.

- More transparent billing practices - with utilities companies providing the same level of information as they do for domestic consumers.

- Contract date or status and contact details for the complaints process added to bills, some providers such as British Gas already provide information on complaints procedures but not all do.

- Standardisation of contract termination from suppliers (this varies from 4 months to 28 days depending on supplier).

- Businesses to be given better access to compensation when errors are made by utilities companies (not credit on future usage) and a greater say on repayment terms if bills have been underestimated.

- Brokers, intermediaries and other suppliers to be signed up to a recognisable professional body such as the Utilities Intermediaries Association (UIA), which would encourage best practice. 

- A robust code of conduct for providers introduced covering issues such as response times to questions and customer-focused resolution processes.

The Forum is working with the Utilities Intermediaries Association (UIA) to raise awareness of the inadequate protection for SMEs.

Both organisations have attended various meetings with Ofgem and representatives from the Department of Energy and Climate Change (DEC).

They have also written to Ofgem urging it to investigate utilities companies alleged breaches of Supply Licence Condition (SLC) 7A covering micro businesses as well as SLC 25, which covers energy providers' sales and marketing activities for domestic customers.

Ofgem said it has been ‘monitoring suppliers' compliance [with SLC 7A] since its implementation in January this year.'

It confirmed that, for micro-businesses, it requires clear and transparent contract terms and conditions and limited contract rollovers.

However, it said the regulation of the provision of energy by third parties – including third party sales activities) is covered under the Business Protection from Misleading Marketing Regulations 2008, which is enforced by the Office of Fair Trading (OFT). Ofgem stated that it ‘does not have enforcement powers under these regulations.'

It said it would, however, make the OFT aware of evidence of mis-selling by utilities companies and third parties representing them.

Ofgem also reminded business owners that, in cases where a complaint to a supplier has not received a response deemed satisfactory, they might be able to pursue it with the Energy Ombudsman.


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