Businesses can’t see the energy wood for the trees

This week has brought news of yet more energy price rises for consumers, yet the UK’s businesses are also continuing to feel the pinch. For some businesses, already suffering the pains of higher borrowing, downward price pressures on goods and services and tightening economic conditions, these increases pose a significant threat to their ongoing business prosperity.

 

With the stakes this high, supplierswitch.com continues to urge businesses to shrug off their apathy and take steps to ensure that they get the most competitive renewal quote from the broadest range of suppliers. Sounds simple? Yet some businesses are having the task made more difficult by their brokers.

 

Whilst businesses clearly need to give this adequate attention, they also need to focus on their core skills – not spend days sorting out a supply contract. Most brokers major on dedicated account management and other useless services – what I’d call over featured and over complex propositions. In the current climate, customers can’t afford to spend two months pontificating about the market and missing opportunities whilst they do so.

 

When it comes to renewal, the message is clear– keep it simple.

 

One size does not always fit all

 

Earlier this week, the British Chamber of Commerce asked energy regulator Ofgem to hold suppliers to account over the “lack of transparency and fairness” in their dealings with firms.

 

Whilst the BCC is to be applauded for speaking out against a rapidly growing problem, its suggestion that businesses be treated like consumer customers and offered the chance to switch tariffs every 28 days is both short sighted and ill advised, in our opinion.

 

The wholesale energy market model does not support this kind of arrangement – the only likely outcome would be even higher prices for customers, as suppliers inflate prices and introduce additional charges to offset the risk of losing the customer after just 28 days.

 

A much more feasible way to achieve transparency in energy pricing is to encourage customers to talk to as many suppliers as possible. This will ensure they achieve the best tariffs and don’t leave themselves open to hidden fees that their brokers had built into supply contracts, while claiming to offer a ‘free’ service. 

 

It’s common sense really, yet promoting ineffective solutions similar to those available in the consumer market could further promote a lack of transparency amongst suppliers. Businesses need to manage the cost risk of energy prices, not be further exposed to unquantifiable price changes on a regular basis.

 

 

 

 

 

 

 

As clear as mud!

This week the AA has called for better transparency in the pricing structure of petrol on the forecourt and claimed that companies have been slow to pass on the recent falls in the price of oil to consumers; but the lack of transparency in the petroleum retail industry pales in the face of the way some energy brokers behave.

 

What we need is a wide-ranging investigation that puts the interests of businesses first.

 

Hidden fees, complex contracts and commercial details that make true like-for-like comparisons near impossible. Preferred supplier agreements at many brokers’ means businesses have no idea whether they are getting the best deal or that their energy contract requirements have been circulated as many suppliers as possible. Without this how can you make an informed decision on where to place your business

 

If it sounds too good to be true, it probably is…

So, the Office of Fair Trading has reported that 81 percent of UK banks’ £8billion annual revenues come from two sources: insufficient funds charges (£2.6bn) and net credit interest income (£4.1bn). It also said that, often, these charges weren’t clear enough. This lack of transparency and the complexity of the charges, the OFT says in its report ‘Personal accounts – a market study’, means that it is difficult for customers to compare the market and switch banks.

John Fringleton, chief executive of the OFT is also quoted as saying that unless the banks played ball, it would be hard to avoid regulation. Regulation would increase openness and competition by making fees and charges more transparent, giving customers the opportunity to make sure they are getting the best deal.

But while the OFT report shows that the UK banking industry is underpinned by these fees, it is not alone. The fees charged by energy brokers for finding businesses the most competitive deal on their electricity and gas contracts are also the foundation of the industry – they did tell you about their fees when you last renewed your supply contracts, didn’t they??! Your energy broker told you they provided a free service? They spend time finding you the best energy deal and don’t expect a penny in return – sounds too good to be true if you ask me – and doesn’t sound like a sustainable business model either!

Next time someone tells you that something is free you might want to check the small print… You might also want to investigate whether you really are getting the best deal next time you come to renew your energy contracts. Oh, and if you want to find out how much your brokers fees really are for their supposed ‘free’ service email info@supplierswitch.com - we can help you.

 

The energy ‘elephant’

get out, get out, there’s an elephant in the room…  there’s an elephant in the room… an elepha…

OK, there is no elephant, but if you believe everything you read in the newspapers and via the broadcast media this week you’re probably wondering whether you should start to panic.  Oil and gas reached new record highs this week and the experts also reckon that oil will reach between 200 and 250 dollars a barrel in the not too distant future.  But you can take comfort that, if you are starting to get nervous, you’re not alone – even some of the experts seem to be feeling the pressure!  Even one of the supposed industry experts, advising some of the largest blue chip companies, said this week  they think the oil market is out of control and he doesn’t understand why prices are where they are!!  I’m not sure how much was politics – on account of their close affiliation to Opec – or that that really doesn’t understand.  If you’re a customer though it’s a little worrying, either way!

But, while the rising price of oil and gas were headline news, the fact that coal fell by $20 a tonne this week made a story for just one broadsheet and a handful of newswires.  Yes, you read it correctly – coal fell by $20 dollars a tonne this week resulting in wholesale power prices actually dropping a little this week.  MPs in the UK also announced an investigation into the role of speculators in the rising oil price. But of the close on 800 stories of rising commodity prices (from a quick search of Google news) these failed to account for more than a handful of hits, combined.

While all of the generation fuel prices are inextricably linked – and electricity prices are still set to rise significantly as businesses renew their contracts between now and the end of the year – having a full command of the facts before making a decision on which contract you sign will help you get the best deal for your business.  And, despite the rising commodity costs energy remains one of the top five controllable costs for business.

Now, has anyone seen that elephant??!

 

Oil be damned! (A week is a long time in Energy!)

You’ve got to feel sorry for some of the world’s most influential politicians and business leaders.  They fly half way around the world on a mission to save the world from record oil prices – and then find that the net result of their efforts is a surge in prices, despite a commitment from Saudi oil producers to pump another 200,000 barrels of oil per day into the market.

 

Usually the whipping boys when it comes to oil consumption issues, the Americans are absolving themselves of blame. They’re abandoning their SUVs faster than you can say ‘peak oil theory’ and, we’re told, the US economy is in freefall – unemployment, household foreclosures, ‘gas’ at $4 per gallon at the pumps… it’s not surprising the latest US Government figures show that stocks are building up.  The latest Energy Information Administration’s report shows supplies rose by 800,000 barrels in the week ending 20 June.

 

 

On that basis you’d expect there would be plenty of spare oil in the market and prices should be closer to the $60 per barrel figure quoted by OPEC, than the current $130 market price.

 

But then we’re told the cause of record high oil prices (and as a result other energy commodities) is the familiar double act of supply and demand.  We’re consuming more oil than the exploration and refining industries can provide.  This is, we’re reliably informed, driven by either explosive industrialisation and Government subsidies in China and India.  Either that or its speculators that, used to make their six figure bonuses trading currency, are trading oil.  After all, the dollar is not worth the paper it’s written on any more, is it? – at least not until November.

 

Other commentators cite Geo-political tensions in Nigeria and the Middle East for shortages in supply.  But then others talk about US companies controlling most of the oil resources in Iraq.

 

Confused?  The energy supply companies hope so! 

 

All we know is that businesses face some of the largest energy bill increases of all – upwards of 100% year-on-year if our calculations are correct.  What’s important is businesses understand how, despite unprecedented energy market volatility, energy can still be one of the top three controllable costs. 

 

The million-dollar question is ‘how?’!!

 

UK businesses blissfully unaware of 100 percent energy price ‘shock’

The announcement by uswitch – the consumer market comparison and switching service – that consumer energy bills are set to rise by a further 40% over the coming months pales into insignificance compared with the ‘shock’ about to hit UK businesses.  supplierswitch.com calculates that the average rate of increase for corporate energy users will be between 60 and 100 percent year-on-year.

 

To compound this, the majority of businesses are blissfully unaware of the increases that await them when they renegotiate their annual fixed price, fixed term energy contracts between now and the end of 2008.  Anecdotally, UK businesses have only budgeted for a rise of around ten percent.

 

The lucky ones will be able to pass these increases on to their customers – delivering consumers with another increase in the cost of living driven by rising energy prices.  The unlucky ones will be faced with the unpleasant prospect of seeing the increased cost of energy bills coming directly off of their bottom line.

 

Despite unprecedented energy market volatility and rising wholesale prices, however, energy remains one of the top five controllable costs for businesses.  To find out how visit www.supplierswitch.com

 

7 steps for avoiding corporate fuel ‘poverty’

7 steps for avoiding corporate fuel ‘poverty’

  

Last Friday the UK Government announced measures to help ‘fuel poor’ consumers deal with spiralling energy costs, but there is still no mention of what they are going to do for businesses.  

 

Energy market experts supplierswitch.com has calculated that around three-quarters of UK businesses currently on fixed-term one or two year deals are likely to face crippling increases of between 60 and 100% year-on-year, when contracts come up for renewal throughout 2008.  For some, already suffering the pains of tightening economic conditions, it could be the final straw unless they have taken steps to mitigate the risks.

 

With the Government failing to offer support, supplierswitch.com has decided to offer our own 7 step plan to help UK businesses better manage the spectre of fuel poverty.

 

1.  Calculate how much energy you ACTUALLY use - Knowing what you consume means that when a supplier gives you a quote you can validate it accurately.  

 

2.  Put your RFP out to as many suppliers as you can – By comparing as many different suppliers gives you better visibility of the market and also enables you to negotiate a competitive deal.

 

3.  Don’t wait until the last minute to think about renewing energy contracts – Consider your energy contracts well in advance of renewal.  Ideally, a business will monitor energy prices year-round, but contract negotiations should begin at least three months before the end of an existing deal to ensure you get the best deal – not the only deal available come renewal.

 

4.  Compare apples with apples – While the price of energy is a key marker of how good a deal is it’s important to consider the commercial terms of any contract.  While the price might be competitive the deal as a whole may not be best for your business.  

 

5.  Don’t bury your head in the sand – Keep abreast of market moves so you know where you stand from a budgeting perspective at any given time.  You’ll make a friend of the CFO!!

 

6.  Set realistic budgets… and if you don’t know the likely energy price rises facing your business budget for the worst-case scenario rather than the best to avoid any nasty surprises!!

 

7.  Where possible, take expert advice – supplierswitch.com is one of a number of brokers that can help companies manage energy contracts and secure competitive supply contracts in a volatile, and rising, market.  The company has an in-depth knowledge of the energy markets and its experts have worked with many of the UK’s leading businesses to manage energy price and consumption risk.

 

 

 

 

 

Parliamentary hearing should consider impact on UK businesses

While supplierswitch.com welcomes the Government’s attempts to address the issue of spiralling energy costs, it would urge the cross-party group to extend their gaze towards how these problems are impacting upon businesses.  supplierswitch has recently conducted research into annual energy costs, which produced concerning results for Britain’s small and medium-sized business (SMBs) in particular.  Those companies set to renew their annual contracts in October 2008 that have been on a fixed price deal (typically an annual contract) will be looking at increases of 83% in their electricity bills and a massive 137% for gas.*

 

According to Equifax the number of business failures this year has already risen by 9% year-on-year.  In the face of these increases, those companies that have not budgeted for such large increases in their bills will be facing a significant threat to their ongoing business prosperity.  supplierswitch.com forecasts that price rises of between 80 and 140% will be a major contributor to an increased number of business failures throughout the remainder of 2008 and 2009 unless appropriate steps are taken to manage energy price rises.

 

- Jon Davies, Managing Director, supplierswitch.com

 

*calculations are based on current wholesale prices and those in May 2007.

 

Welcome to the supplierswitch business energy blog – a source of insightful comment and practical advice on reducing corporate energy bills