Front Page Pubs got a shock when British Gas invited it to renew its electricity contract last year. It had been paying around £40,600 a year for the electricity for its seven pubs, but British Gas wanted an estimated £70,000 a year for the new contract.

Rupert Fowler, then joint managing director, called in brokers to negotiate a better deal, and ended up with a forecast annual bill of just £47,500 for a 30-month contract with a new supplier.

Front Page Pubs, which was sold to gastropub chain Food and Fuel in July, avoided the increase. But as many as 19 out of 20 of the UK's estimated 1.7 million small and medium-sized enterprises (SME) could be paying over the odds for their electricity, according to Jonathan Elliott, managing director of Make It Cheaper, the utilities broker that helped Front Page find a better deal. "Business electricity contracts are not at all like household contracts, which can be switched at any time," warns Elliott.

Businesses that take on a new supply contract with one of the big six suppliers—British Gas, EDF Energy, Npower, Powergen, Scottish & Southern Energy and Scottish Power, which control 96 per cent of the market—are likely to be offered a loss-leading price for the first year.

But when they come to renew, that price could leap by as much as 100 per cent. Most SMEs may not even realise they're locked into expensive contracts, warns Graham Paul, sales and marketing director of Electricity4Business. That's because suppliers' renewal notices don't make clear the percentage increase in price.

"Small businesses get a letter which just quotes unit prices in pence," says Paul. "They don't equate that to anything. It's not until you multiply the unit cost by your actual consumption that you realise how much more you'll pay."

One director did the sums and realised her annual electricity bill was about to more than double from £2,000 to £4,500. Paul estimates the average small business uses 27,000 units of electricity a year. So the difference between paying a low price of around seven pence a unit and the 12 or 13 pence often charged in renewal contracts could be as much as £1,600 a year.

But Elliott believes you have to be a bit of a "rate tart" and shop around for a new deal every year in order to ensure the lowest price. The trouble is that most directors don't realise they're locked into "evergreen" contracts and may need to give as much as four months' notice to switch.

"Most directors mistakenly think they've just bought a contract for a year," says Paul. His advice: "When you sign up as a new customer, send it your contract cancellation notice at the same time. In that way, at the end of a year, you've got a choice whether you want to continue with the same supplier or whether you want to shop around for another low-priced deal."
Directors are catching on. Around 150,000 are now switching supplier every month.

PLUG IN TO HELP
• Energy Watch has a website with plenty of advice for small businesses: www.energywatch.org.uk
• Industry regulator Ofgem provides background on the workings of the energy markets: www.ofgem. gov.uk
• Electricity4 Business has a free, downloadable briefing on changing supplier: www.electricity4business.co.uk
• Make IT Cheaper has a four-step process for saving money on business electricity costs: www.makeitcheaper.com