Warning on business energy contracts

Electricity providers have been told that they could face an official investigation into their competition practices if they persist in asking firms for large advance deposits.

The warning has come from Alistair Buchanan, chief executive of Ofgem, the electricity and gas regulator.

Mr Buchanan threatened to launch a Competition Commission enquiry into those major suppliers that fail to observe a new voluntary agreement on energy contracts.

It has been claimed that thousands of businesses, many of them SMEs, are having to pay upfront deposits, some worth as much as six months of supply, to electricity companies.

Letters of credit assurance and guarantees are also being demanded by suppliers.

To make matters worse for SMEs, some credit insurance providers are refusing to authorise cover for the non-payment of energy bills on the grounds that firms lack sufficient credit status.

Make It Cheaper, the business energy price comparison service, has calculated that as many as one in three of SMEs do not fulfil the requirements needed for a credit rating.

Jonathan Elliott, Make It Cheaper’s managing director, said: “It means they could be faced with making a big down payment to get a new supply contract.”

In response, the electricity providers have pointed to the recession, along with their own escalating credit risks as they themselves buy energy supplies in advance, as reasons for the criteria they sometimes impose when offering business customers contracts.

Ofgem has been working to prepare the way for more constructive negotiations between businesses and the energy companies ahead of the traditional autumn round of new contract deals.