The government regulator has sent a letter to suppliers and consumers in the non-domestic market regarding its review of the system that allows suppliers to automatically extend micro business contracts for a maximum of 12 months.
The review plans to reassess the clause in many non-domestic contracts that allows suppliers to introduce higher rates and new terms when they rollover business contracts.
Customers can only prevent these changes by negotiating a new contract with their supplier before the end of their notice period – otherwise they cannot switch suppliers until the end of the new fixed term and must pay the rollover rates.
Ofgem proposed to ban these contracts in April 2009, allowing customers to agree to another contract or move to a new supplier. But the proposal was amended in June that year, due to concerns about the impact on prices and the dynamics of competition.
Scandalous
Joe Cussens, director of the Bath Pub Company, told the Publican’s Morning Advertiser he had to pay “eye-wateringly high” electricity bills after his contract was automatically extended and welcomed Ofgem’s review.
He said: “The way energy companies are currently allowed to operate with these auto rollover contracts is, to my mind, nothing short of scandalous. I can’t think of another industry where the supplier sets out to penalise their existing customers at the end of a contract, rather than incentivise them to stay.
“It is an appalling example of stitch up business practice and just why Ofgem has allowed the industry to operate like this is quite beyond me. It’s an industry wide phenomenon; the energy companies’ contracts and whole approach to the contract renewal process is designed to catch customers out so they automatically roll them on to much higher rates at the end of their contract.”
Price rises
However, many suppliers oppose the ban saying that customers may be placed on deemed or out of contract rates if they do not agree a new contract with their existing or new supplier, which can be far more expensive than contracted rates. Other concerns are that a less stable customer base for suppliers will lead to an increase in hedging costs and price rises across all their customers.
If the proposal is given the green light, Ofgem plans to introduce a number of changes to protect consumers including clearly displaying the date the contract ends and the deadline for giving notice to change supplier on bills.
Ofgem has also suggested an increased energy usage threshold and a stricter monitoring of customer transfers.
Any responses to the proposals should be emailed to Ofgem by 11 July. A consultation on the preferred option is expected to take place before the end of the year.