Buying power
Four of Chris Lumb's hotels are about to see their electricity bills slashed by more than one-fifth. These price cuts will add to the small fortune he has saved already by abandoning his local electricity supplier and shopping around for cheaper electricity for 20 other hotels.
Lumb is an associate director of British Trust Hotels, responsible for purchasing. His portfolio spans 24 hotels, mostly dotted around the Highlands of Scotland but with an increasing number south of the border. Of the two dozen, most have around 80 to 90 beds, but four fall into the 30-beds and fewer category. With smaller electricity bills, these four have, until now, had to pay a lot more for each unit of power they used because their suppliers held effective monopolies.
But things are changing. British businesses will soon see an end to the days when electricity was a fixed overhead alongside water rates. From this autumn, electricity users will be able to choose who supplies their power.
This is the third wave of deregulation of the electricity industry, a process which began in 1990. Then, big corporations were the only beneficiaries. Four years ago, the market opened to medium-sized users - for example, hotels with more than 100 bedrooms may have benefited. But it is only now that all electricity users, including small businesses, can shop around for the same deals.
As a case in point, Lumb's four smaller hotels, along with some 26 million other electricity users, have always been tied to their local electricity supplier, and have paid whatever tariff is offered to them. Only a privileged 55,000 users have been able to shop around for power in the same way they buy insurance, or perhaps telephones.
Current estimates are that most of the remaining users will be able to save upwards of 15%. And many will save more.
Bob Spears works as a consultant for a group of companies which have already dipped their toes into the competitive market and have formed the Utility Buyers' Forum. Businesses "ought to see between 12% and 15%," he says. "I'm sure some will get 20%." The extent of the savings will depend on where in the country premises are situated. Customers supplied by Yorkshire Electricity and Seeboard, for example, already pay less than customers of Scottish Hydro-Electric. It may also matter how much each business uses and when - what the electricity industry calls the consumption profile.
In Lumb's opinion, the imminent opening of the electricity market to full competition comes none too soon, even though he has won for British Trust Hotels increasing savings off its £500,000 annual electricity bill year-on-year.
For the past four years, Lumb has been able to negotiate cut-price electricity deals from several different suppliers. He started with an 8% reduction from his local supplier, Scottish Hydro-Electric, but now buys power for all his hotels from London Electricity, even though most of his premises are 500 miles north of London. Each year's negotiations have seen a further 2-3% shaved off his bill.
Every one of the local electricity companies will be competing for Lumb's business - and everyone else's for that matter. There will also be new entrants chasing business, such as British Gas and Independent Energy. For suppliers, the hospitality trade could be an attractive sector. One which expects to start trading in December, Electricity Direct, said it was targeting hotels, nursing homes and restaurants because customers often had multiple sites, so "if you win one contract, you have often won several customers".
Many businesses have become accustomed to seeking out better deals for gas. In the 12 months since the deregulation of the gas industry, businesses have become accustomed to shopping around. But for those that have already been through both gas and electricity buying, electricity has proved by far the tougher. "Let's face it, electricity is more complicated," says Spears. "But that is not to say people should not be asking around."
Electricity competition will mirror that in the gas sector in many ways. As new gas suppliers use existing pipes and meters, so electricity suppliers will use the same wires. As gas suppliers will offer a number of different contracts to businesses, so too will electricity suppliers. But for customers buying electricity, there are additional complications.
First, there is a question of timing. Customers will be able to switch supplier only when their local company has new IT systems ready to cope with the switch. Some companies have been slower to act than others. Even then, as a first stage, only 10% of each region will open at once. However, businesses should be among the first users to be able to switch, and by December of this year all of them should be able to choose their electricity supplier.
Second, there are complications for business users. Generally, customers using less than 12,000kWh a year (amounting to an annual bill of around £8,000) will be treated in a very similar way to domestic customers. Suppliers will have to publish tariffs for these users, and businesses will be allocated a profile. Users will be able to get out of contracts at a month's notice.
Above this level of consumption, and if premises have more complicated metering systems than most, customers will have to negotiate contracts with suppliers. This may involve deciding on a new meter which reads consumption every half-hour, and investigating the pros and cons of one- or two-year contracts. Essentially the electricity regulator, Offer, has decided that these businesses can look after themselves and are not offered the same protection as smaller customers.
Nevertheless, according to Spears, it is possible to get started quickly. "People can be checking their meters, finding their supply numbers, and pulling out recent bills," he advises. "If nothing else, they can be trying to get their host electricity company to give them a quote. Phoning will put them on their mettle."
Before making a quote, all suppliers will need, at the very least, the supply number and address of the premises. The supply number should now be printed on the top right hand corner of each bill, prefixed by an "S". This will tell suppliers the profile and the type of metering used. There will be a different supply number for every single meter, although the supplier should be able to quote one contract for every premises, and offer one bill, even where they are spread across the country, as are British Trust's hotels.
Providing information from recent billsis an added bonus as far as suppliers are concerned, and could lead to a better quote. "It shows a degree of professionalism, "says Spears, "if you can produce a small spreadsheet of consumption through out the year."
Lumb now produces a lot more information than this, but he is an old hand compared with people in most businesses. "Once you have done it once," he says, "once you have a profile, maximum demand and a consumption figure, it gets easier."
While it is possible to go it alone in this way - Lumb claims he would not want to lose control of his negotiations - many businesses use brokers or energy consultants to handle both their electricity and gas buying. Some will handle initial contract negotiations and administration when switching supplier. Others can take on everything from contract negotiations to monitoring energy use and advising on energy efficiency measures as well as checking bills.
London's 92-bedroom Basil Street Hotel, which has an annual electricity bill of around £40,000, has gone down the broker route. The hotel's accountant, Peter Puls, went to Energy Management Brokers, which negotiated a deal with supplier PowerLine. "Electricity is one of our highest general expenses," says Puls, "but it is one of the things for which there are so many options, we have not got the time to handle it ourselves - better to pay someone a small fee to do it for us. Unless you know someone who can decipher the weird language, I would not try to do it."
Beyond the hassle involved in negotiations, there is one other warning that is frequently repeated. As with the opening of the gas market, and with the first stages in opening electricity, there are bound to be hitches and errors in the new billing systems.
"There is money to be saved, but I have serious doubts that players will get the billing right. In both gas and electricity, I see billing errors all the time," says a concerned Paul Keatley, who consults for several British Hospitality Association members.
For most businesses, the first hurdle will be knowing that there are better deals around the corner. If awareness of gas competition is anything to go by, many of the smaller businesses may miss out.
The Federation of Small Businesses and the Gas Consumers' Council undertook a study last year and found that many small businesses were confused as to whether they could switch supplier. The BHA is already versed in electricity competition and has brokered deals with consultants such as Keatley on behalf of members.
For more information, contact the Office of Electricity Regulation (tel: 0121-456 2100) for a free booklet: How does electricity competition affect business users?
