Guide to Different Types of Business Electricity Contracts

What is a rollover contract?
A rollover contract (also known as evergreen, assumptive renewal) is 'an agreement between two parties that is automatically renewed (rolled over) after each completion - or maturity period, until cancelled by either party.' Unlike household energy contracts, nearly all business electricity and gas contracts are evergreen, meaning they automatically renew themselves if you don't terminate them with a letter of notice. Some suppliers renew over 90% of their customers in this way, rolling them over in to new contracts when often the customer is unaware this is happening. Suppliers use this as an opportunity to charge uncompetitive prices.

How do I avoid getting rolled?
Each supplier has different, and often complex, rules about renewing your contract with them and they will usually write to you anywhere from 120 days before your contract end-date to inform you of their intention to roll you over. This letter often triggers the opening of your renewal window, putting the onus on you to terminate the contract in writing before the window closes again which - in many cases - can be as little as one or two weeks later.

Does it make any difference if I'm a Not-for-Profit organisation?
Sadly businesses, in the eyes of the utility companies, include all not-for-profit / community buildings such as churches, village halls and Scout huts. You may, however, be eligible for a lower rate of VAT and Climate Change Levy.

What rate of VAT should I be charged for my gas or electricity?
VAT for business consumers of energy is normally charged at 15%. However, some businesses will meet the ‘Deminimis' requirements and then would be billed at 5%. This means using an average of no more than 33 kWh per day (1,000 kWh per month) for electricity and/or less than an average of 5 therms or 145 kWh per day (150 therms or 4,397 kWh per month) for gas.

What is the Climate Change Levy?
The Climate Change Levy (CCL) is a Government tax, introduced in 2001, on the use of energy by business, agriculture and the public sector; it applies to both gas and electricity. The aim of the levy is to encourage industry, commerce and the public sector to improve energy efficiency and reduce greenhouse emissions. Current Electricity CCL is 0.456p per kWh and Gas CCL 0.159p per kWh.
Do any types of business qualify for 5% VAT and CCL exemption?
• Residential / domestic buildings - including accommodation for children, the armed forces, carehomes, rehab centres, hospices, monasteries & nunneries.
• An institution which is the sole or main residence of at least 90% of its residents - except hospitals, prisons or similar institutions, hotels, inns or similar.
• Self catering holiday accommodation, caravans & houseboats.
• A charity or where there is a supply of goods or services partly for charitable endeavours.

Are there any other types of contracts to be aware of?
The other most common types of contracts for businesses are ‘28 Day', ‘Deemed Rates' and ‘Half Hourly'.

What is a 28 Day contract?
Businesses that have never switched supplier since the market was de-regulated in the 1990s often find themselves on 28 Day supply contracts. The rates charged for these contracts can go up and down with the market and are rarely competitive. As such, we would always recommend a business switches on to a competitively-priced ‘fixed-rate, fixed-term' contract for a minimum of a year - even with the same supplier. Thankfully, as the name suggests, the switch can be carried out anytime after giving 28 days notice.

What are Deemed (or out-of-contract) Rates?
These rates are usually the worst and usually apply to businesses that are either new to the property or have terminated a contract but failed to switch to a new supplier. The good news is that, like 28 Day contracts, there is only a maximum of 28 days notice required to switch onto better rates.

What is Half-Hourly / 100kW supply?
Half-hourly meters are for energy-intensive businesses whose average peak electricity demand was greater than 100kW in any three months of the previous year. There are two simple ways of checking if you are a half hourly customer: usually a half hourly meter will have a communications link so that meters can be read remotely on a daily basis or if you check your meter reference number on your bill you'll see that it begins 00.

What if I'm new to the property?
If you have just moved into a property, you will be supplied by the same company that the previous tenants used. However, this supplier is likely to be charging you out-of-contract rates which are significantly higher than average. It is important that you arrange a new contract for your business as soon as you can after moving in. If you call us with your new address, we can find out who your current supplier is, your meter reference number, and advise you on the best option going forward.

Can you install a meter in to a new site?
In this instance, we would advise you to contact your local supplier, have them install a meter at your premises and enter a fixed-price contract with them on the minimum fixed-term contract they have available (usually a year but sometimes as short a nine months). Once you are on supply and have a meter reference number we can search the market for a better deal to switch to once your initial contract expires.

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Jonathan Elliott is Managing Director of Make It Cheaper, the UK's leading independent price comparison and switching service for business electricity & business gas as well as a range of products including: insurance and telecoms.

Contacts
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Jonathan Elliot
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Email:
www.makeitcheaper.com
0800 970 0225