Brexit is on the horizon, costs of energy are rising following the fall in sterling and an increase in taxation, and it appears that the UK’s energy generators can only just meet energy demands. It’s not hard to see why practices should be keenly aware of the impact of energy usage on their bottom line.
After all, heating and lighting a practice as well as powering devices such as x-ray machines, air-conditioning units or sterilisers takes a fair amount of energy. According to the Carbon Trust in a December 2013 document, Better business guide to energy saving, most firms could, with low or no-cost changes, bring bills down by 10%.
Make a saving
Chris Caffery, an adviser at independent energy consultancy Utility Options Ltd, believes that 95% of his clients can save either on their upcoming contract renewal or their current pricing. He finds it irritating that there are still too many on uncompetitive contracts or paying high non-contract prices.
From his point of view, practices should understand that being ‘out of contract’ – that is, not signed up to a deal but instead paying standard pricing – is not a smart idea.
He says: “Having no energy supply contract may give flexibility, but it also means that practices will be charged out-of-contract pricing that can carry a 20-30% premium over standard tariffs.” He explains: “Suppliers say they have to buy energy on an ad hoc basis, paying wholesale rates for that anticipated energy on a daily basis.
“They will build extra margin into these tariffs to cover large wholesale increases. On a fixed contract, the supplier buys the energy for the whole contract at the price agreed. This way they know their margin and this can’t change for the period of the contract.”
Thankfully, rollover contracts have been abolished. They effectively trapped businesses into a given supplier and tariff if notice wasn’t served in the prescribed manner.
So, when should practices give notice if they want to leave? Caffery says two to three months prior to the contract renewal is usually good timing. “The new system requires a standard 30 days, but termination can be served to a supplier before this time as long as the customer doesn’t try to switch before the renewal date. Should they go past the renewal date, they will usually revert to the standard tariff which they can leave at any time by giving 30 days’ notice.”
How to switch
Of course, it’s entirely possible to find and switch to a new supplier without any external help – especially if a practice contacts a supplier directly on the right day when rates are low or the sales department have a target to hit so can reduce their margin. But there are better solutions than DIY from Caffery’s point of view. The first is to either use a broker that can obtain a better rate because they already deal with suppliers in bulk and in return, suppliers offer tariffs with already low margins. The other is to use a consultant who can do the same but adds other benefits such as bill analysis to confirm correct low rates, contract renewal notification and reminders, and non-tariff-related savings, such as meter downgrades/installations.
Third-party help should be considered
Unlike the domestic market, because of the way that business energy supply works, making a quick online comparison is not simple. While the domestic market is largely based on location, Caffery says the commercial market uses a number of elements that determine the tariff cost: “There is a varied mix of wholesale rates, transportation costs, government taxes and levies and, of
Unlike the domestic market, because of the way that business energy supply works, making a quick online comparison is not simple
course, profit for the suppliers. Generators still rely heavily on coal, oil and gas, so actual or anticipated costs of these fuels can create large differences in retail prices.”
There are a great many more online comparison websites for domestic energy than there are for commercial suppliers. “One of the main reasons for this,” says Caffery, “is that domestic tariffs set by suppliers have a longer ‘shelf life’, usually due to a slightly higher margin placed on domestic for this very reason.” Other factors are considered, such as credit rating (because practices are effectively borrowing from the supplier) and the length of contract (a deal may be poorer at first, but over time this improves as market prices rise).
But using a broker or consultant doesn’t always guarantee price transparency; it’s not easy to compare the price that’s being offered unless brokers are changed, particularly if the negotiations are happening a day or two before renewal. The advice? Don’t leave negotiations until just before the renewal is due, as it doesn’t give an opportunity to shop around.
As for what could be saved, Caffery offers two examples: “We have a large practice in Bristol with eight employees. Typical savings year on year here are 12% for electricity and 16% for gas.” He says this equates to around £860 per annum. “We also helped a very large practice in Glastonbury. The typical saving over the supplier’s direct renewal prices was around 10%, which was approximately £1,000. Frighteningly, the practice said it was nearly convinced by a cold caller earlier in 2017 to accept a very high renewal price until they contacted us to confirm that it was a deal worth taking. As their broker for eight years, they knew that they could trust our advice and this advice alone will probably save them £600 next year.”
Caffery says using a consultant isn’t just about the rates that are negotiated. It’s about saving time and not having to deal with suppliers – “sometimes the extra added services can far outweigh the visual savings on the utility bills”.
To conclude
Clearly, there are a number of lessons that can be drawn. Plan well in advance for benchmarking and renewing (switching) contracts. The energy companies would much prefer customers on standard tariffs, but with some planning and effort, decent savings can be made.
