Microbusiness Consumers
Free, practical consumer advice and information on energy-related matters for the citizens of Scotland
Definition of Microbusinesses
A microbusiness is a term used to describe the smallest category of business. The energy regulator Ofgem categorizes micro-businesses based on the number of employees, its income and its energy usage:
- Microbusinesses have an annual turnover of less than £2 million.
- Microbusinesses have less than 100,000 kWh of electricity each year.
- Microbusinesses use less than 293,000 kWh of gas each year.
Microbusiness Contracts
If you run your business from home, you can only get a non-domestic contract if more than 50% of your energy consumption is for your business.
Prices for business contracts are more flexible than domestic, and suppliers will consider a number of factors when deciding your costs such as:
- The amount of energy you use.
- What type of business you have/ what industry you are in
- What time of day your business functions
- How many sites you have
You will also get options for fixed rate or variable tariffs, and the length of the contract.
Business contracts do not offer a cooling off period, so customers need to be careful to read and understand all the terms and conditions of their contract when signing up.
Domestic contracts are normally flexible when customers wish to leave or change contracts. Business contacts are not, and you can be tied in for the whole term of the contract or face a high charge for leaving early.
A ‘deemed contract’ refers to an automatic agreement between a supplier and a new owner of a business. These contracts are not preferable to negotiating a new fixed-term contract because a ‘deemed contract’ is often more expensive. There is no notice period for cancelling a deemed contract and a supplier cannot prevent the business from changing to another supplier.
Meter Reading and Energy Efficiency
There are three small-scale methods that can save your business a considerable amount in energy costs:
- Ensure that heating and lighting are not overused by not keeping the temperature too high, turning off lights when not in use, using newer or more energy-efficient bulbs, and shutting equipment down instead of leaving on standby.
- Reading the meter on a regular basis if your business does not have a smart meter. This ensures that actual readings are used instead of estimations of energy usage. Getting a smart meter would do this automatically, so it would be worth enquiring with your business’s energy supplier.
- Check the available tariffs to see if a better price is available to your business.
Obtaining readings from an energy meter is a method of monitoring costs for a business, and potentially reducing these. Much like customers supplying their homes, businesses should take readings from their meter and send them to the supplier for each billing period. This is because the supplier will otherwise use an estimated reading of the energy which can be inaccurate, and as a result, may be higher than the actual energy being used.
It is beneficial for the business to have a smart meter that will display and send exact readings to the supplier automatically. A smart meter can be requested from a supplier, but there is no obligation to supply them until the 2024 rollout deadline has been reached.
Microbusiness Billing and Arrears
Back billing is the practice used by suppliers to charge for energy costs that should have been in a previous bill (e.g., the supplier was mistaken about the amount of energy used at the time). A microbusiness can’t be back billed for the cost of energy that was used over 12 months prior, unless the supplier has reason to do this, such as the business customer avoiding supplying accurate meter readings and bills being produced on under-estimated usage.
Business suppliers are not tied to the same regulation as domestic ones, and so disconnection is more common. Customers may also face charges for both disconnection and reconnection – and if there is debt may have to pay a large chunk of it to be reconnected
If a business is unable to pay an energy bill or is in arrears, it should contact the energy supplier to find an alternative payment arrangement. Suppliers should give the business time to pay or an opportunity to renegotiate the contract depending on prior payment history. This should be done as soon as possible to ensure that an amicable solution can be reached. Ofgem (the Energy Regulator) provide very specific guidelines for energy suppliers on handling customers with debt and arrears fairly.
Microbusiness Supply
Arrears may result in the disconnection of the businesses energy supply. If the supplier wishes to disconnect the supply of a business in Scotland, they must get a warrant from the magistrate’s court first. The business will then be informed of a court date, time and location so that a defense may be heard. This warrant should detail the notice period for disconnection to take place (usually 7 days). The court can delay the disconnection while the case is being considered.
If your supplier is going into administration, Ofgem will transfer you (or your business) to an alternative supplier, preventing you (or your business) being cut off from the energy supply. The selection is based on the new supplier’s ability to continue the service of providing gas and electricity without interruption to the consumers impacted by the administration. The decision will also consider potential companies and their willingness to provide compensation if you were in credit with the previous supplier. Your debt is not transferred to the new company, unless a prepayment meter has been installed.
There are three small-scale methods that can save your business a considerable amount in energy costs:
- Ensure that heating and lighting are not overused by not keeping the temperature too high, turning off lights when not in use, using newer or more energy-efficient bulbs, and shutting equipment down instead of leaving on standby.
- Reading the meter on a regular basis if your business does not have a smart meter. This ensures that actual readings are used instead of estimations of energy usage. Getting a smart meter would do this automatically, so it would be worth enquiring with your business’s energy supplier.
- Check the available tariffs to see if a better price is available to your business.
You can switch supplier as a microbusiness if you give the correct notice to your current supplier. The amount of required notice is detailed in the contract.
You should check the prices to see if another supplier is better value for money (e.g. by using a price comparison site). Alternatively, you could look for cheaper tariffs with your current supplier.
You should switch from a ‘default’ or ‘deemed’ tariff as soon as possible. This is because they are intended to be used before another contract is signed and can be considerably more expensive than other options.
The Effect of the Energy Crisis on Microbusinesses
Business energy is not covered by a price cap the same as domestic energy which left business energy suppliers able to raise prices more than domestic suppliers.
This created a huge issue for businesses who struggled to cope with their energy costs.
To help with the situation, the government introduced the Energy Bill Support Scheme (EBRS) which ran from October 2022 until March 2023.
The Energy Bill Discount Scheme (EBDS) replaced the Energy Bill Relief Scheme (EBRS) from the 1st of April 2023 until March 2024
Eligibility
As with the original scheme, the new scheme will be available to everyone on a non-domestic contract including:
- businesses
- voluntary sector organisations, such as charities
- public sector organisations such as schools, hospitals, and care homes
who are:
- on existing fixed price contracts that were agreed on or after 1 December 2021
- signing new fixed price contracts
- on deemed / out of contract or standard variable tariffs
- on flexible purchase or similar contracts
The amount bills will be reduced
EBDS works in the same way as EBRS, the government will provide a discount on gas and electricity unit prices. Non – domestic customers will receive a per unit discount to their energy bills during the 12 month period which EBDS will run for.
These costs will be subject to a maximum discount. The discounts will be applied if wholesale prices are above a price threshold. These discounts and thresholds have been set as:
Electricity – £19.61 per megawatt hour (MWh) with a price threshold of £302 per MWh.
Gas – £6.97 per MWh with a price threshold of £107 per MWh
The discount is calculated as the difference between the wholesale price associated with an energy contract and the price threshold. The discount is phased in when the contract’s wholesale price exceeds the threshold price, until the total discount per MWh reaches the maximum discount for that fuel.
Recognising that some non-domestic energy users in Great Britain and Northern Ireland are particularly vulnerable to high energy prices due to their energy intensive and trade exposure, (referred to as Energy and Trade Intensive Industries or ETIIs), these sectors will receive a higher level of support, subject to a maximum discount. This discount will only apply to 70% of energy volumes. The maximum discounts and price threshold for these sectors are:
Electricity – £89 per MWh with a price threshold of £185 per MWh
Gas – £40 per MWh with a price threshold of £99 per MWh
As with the original scheme, suppliers will automatically apply reductions to the bills of all eligible non-domestic customers.
Eligible ETII customers will have to apply for the higher level of support. Further details on how this will work will be published in due course. If you think your supplier is not applying the discount correctly, you should contact your supplier in the first instance.
The government will compensate suppliers for the reduction in wholesale gas and electricity unit prices that they are passing on to non-domestic customers.
The discount applied will be in pence per kilowatt hour (p/kWh). The p/kWh government support for comparable contracts will be the same across suppliers, but the absolute level of individual bills will continue to vary across different contracts and tariffs.
Vulnerability
‘Vulnerable customer’ is a term commonly associated with energy consumers who need special considerations for their circumstances, but it can also be applied if you are buying energy as a business. This can potentially apply when your microbusiness’s building is your own property or arrears for a business property threaten disconnection of your residential supply. When problems with that supply are far more likely, or could result in worsening the circumstances, you could potentially be vulnerable. The type of contract you are on changes the considerations that can be made. If you have a residential supply contract and have been in debt to a point warranting disconnection, the supplier must offer a prepayment meter as an option instead.
If you are on a commercial supply contract, the supplier has no obligation to offer you an alternative to disconnection. If you find yourself in arrears under this kind of contract, you should contact the supplier and explain that you are a vulnerable customer. The energy company has the final decision in whether this is the case or not. It is important to check if your business is running on a residential supply. If this is the case, you will be treated like any non-business customer of energy.
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