The power to change
Q: Why should I consider changing my supplier?
A: You will pay less for your electricity. When the new market conditions were introduced in April 1993 there was a 15% average saving for customers who took advantage of the competitive market.
Q: Can anybody change supplier?
A: No. Until 1998, domestic and business customers with a peak demand of less than 100kW must buy electricity from their local regional electricity company (REC).
Customers whose peak demand has topped 100kW three times in the past year are eligible to change supplier. Your maximum demand should be listed on your electricity bill.
Other factors that could help your eligibility include having a single-site premises larger than 1,800sq metres, an annual electricity bill of at least £10,000 and no less than 500 employees.
Q: Can I change supplier immediately?
A: No. Your local REC may require you to give three months' notice. In addition, the settlements system, which bills suppliers, requires a mandatory 28 days to register a change of supplier.
Q: How do I change my supplier?
A: First, you must find out about meters. If your site is not already fitted with a half-hourly meter (known as a Code of Practice 5 type) contact a meter operator and ask to have one installed.
It is vital you start this immediately, because it could take up to three months to get both the meter and the associated data communications equipment installed. All the RECs are meter installers and should already be familiar with your site.
Q: What does it cost to install a meter?
A: A meter is likely to cost between £500 and £700 to buy, but many people feel it is better to rent. The cost of rental is about £150 to £250 a year but you do not have to worry about meter maintenance.
Scrutinise contracts carefully because some operators say they will not be held responsible for any problems with the meter. Check also who is responsible for installing the communications lines needed to read the meter. Ask if your existing telephone lines can be used to transmit the data.
Q: How do I contact the suppliers?
A: Prepare a tender document to send to suppliers. This should include the following information:
A list of all your sites with addresses and postcodes
Meter identification numbers (get these from your meter operator)
A computer diskette containing half-hourly consumption data from each site
A load factor for each site (see below)
A supply capacity for each site (this should be listed on you electricity bill)
Billing and settlement requirements - this, for instance, will say how often you want to receive bills and whether you want to pay by direct debit.
Q: What is the load factor?
A: The amount of electricity your site draws from the supply varies during the day. The load factor is an indication of how often your site draws maximum demand. A site with a high load factor (near to 100%) is attractive to suppliers. Sites that rarely draw maximum load, (with load factors of less than 25%) are less attractive.
The load factor is calculated by dividing your annual consumption by your maximum demand and multiplying the total by 8,760 (the number of hours in a year).
Q: Why do I need to send all this information to the supplier?
A: The more information the supplier has about your sites and needs the better it can tailor the contract to meet your needs.
The most important part of the information is the half-hourly consumption data. If you are joining the market for the first time, you will not have this data. Instead, pick off your electricity consumption from your past year's electricity bills. Write down the maximum demand for as many months as possible, saying whether it occurred at night or during the day. This is a time-consuming and boring job but it could lead to you being offered a better deal in the end.
Do not send a supplier copies of your electricity bills, as they will reveal the exact amount you are currently paying and affect your negotiating position.
If you already have a half-hourly meter fitted ask you supplier for your consumption pattern data. In most cases this is free but it could cost up to £50.
Q: How many suppliers do I need to send the tender to?
A: There are about 20 suppliers in the market, too many to include them all. Choose 10, including a couple of RECs, a couple of independents, one or more generators and your current supplier. It is important to include your local REC to indicate that you are considering changing supplier.
Q: What happens next?
A: Wait for the replies to come back to you. Do not give in to pressure from suppliers who insist the offer will expire in a few days' time unless you accept it immediately. Some suppliers may wish to send someone to discuss the contracts with you. Encourage this because it gives you more room to negotiate. Draw up a short-list and then a select a supplier from that.
Q: What type of contracts are available?
A: There are three basic types of tariff: published tariff, fixed-price and pool-related contracts. Different suppliers are likely to offer you variations of these basic types unless you specify what you want.
If you are new to the market you are probably operating on the published tariff. Charges vary from supplier to supplier. Most tariffs split the day into charging bands. The night/day tariff is one of the simplest types, with the cost of electricity varying between night and day time. Ask your current supplier which type you are on. Seasonal time of day (STOD) rates and maximum demand tariffs are common.
You can negotiate a percentage cut in these tariff rates by using a fixed-price contract. This is a site-specific contract between you and the supplier. In the past this has brought savings of up to 20% for some customers.
To get the cheapest offer ask potential suppliers to suggest different charging band arrangements. It is not uncommon for a STOD tariff to be divided into 30 charging bands instead of the usual four.
Pool contracts are more risky than the other two types because the price of electricity changes every half-hour of every day. But when suppliers quote a Pool-related contract they are estimating what the price of electricity is likely to be over the next 12 months.
Estimates have been known to vary by as much as plus or minus 7%. But Pool contracts list all the electricity charges that may be hidden in the other types of contract.
Q: What are these hidden charges?
A: As well as VAT, electricity bills comprise six different components:
Generation costs - these make up the bulk of the bill, usually 50%
Transmission costs - these are set by the National Grid Company and are site- specific, based on your maximum level of demand throughout the winter
Nuclear levy - this is set at 10% and subsidises the nuclear industry
Distribution costs, known as Use of System (UoS) charges - these make up between 15% and 25% of the bill and include a fixed cost, an availability fee and a component depending on how much electricity you use during the day and night
Administration and settlement charges - these make up about 15% of the bill
Loss payments, covering losses on the transmission and distribution systems - the transmission loss payment makes up about 1% of the bill; the level of distribution loss payments vary daily and account for 2% to 3% of your bill.
Q: Which elements are negotiable?
A: The only negotiable factor is the energy cost - all the other costs are regulated. In Pool-related contracts, there is some leeway to negotiate the administration costs.
Q: Can I negotiate on anything else?
A: There are several areas of negotiation.
If you are a big weekend electricity user, ask for separate weekend and weekday rates
Ask suppliers if they will give discounts for managing your peak demand to suit them
Ask for a discount for placing all your sites with one supplier
Length of contract is another variable. The price of electricity is capped until 1996, after when prices could shoot up. Compare the cost of contracts at different lengths to estimate how much the different suppliers think prices will rise.
