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Energy buyers have welcomed moves by major suppliers to pull the plug on rollover contracts that can automatically put companies – including many SMEs in the process sector – on punitively high rates if they miss renewal deadlines.

nower has announced that from April 2014 it will stop offering default auto-rollover contracts to new business customers. The move, it claimed, was part of a wider approach to offer smaller businesses more choice in how they manage their energy costs.

Existing npower customers will benefit from November 2014, to allow time for wider changes in the market to be implemented, the power company added. The new options will include fixed-term and variable-term contracts as well as those focused on energy efficiency.

npower followed a lead set by British Gas, which on 17 July became the first supplier to end auto-rollover contracts. Its new customers are to be offered alternative products from September, while existing ones will have revised renewal options by June 2014.

“Increasing numbers of our small business customers have told us they don’t like the way the energy industry automatically moves them onto new contracts," admitted Stephen Beynon, managing director of British Gas Business.

"We're calling on the industry and the regulator to work together to ensure that all customers have a transparent choice of products that never include auto-rollover," added Beynon.

Among those to cheering this 'conversion' is energy purchasing consultancy ENER-G Procurement. it has described rollover contracts as a source of excess profits for suppliers over the years and believes the practice has no place in today's market.

"The term 'rollover' implies a soft landing, yet the reality is that organisations which fail to meet deadlines to renew or switch energy contracts are automatically 'rolled over'  into uncompetitive auto-renewal prices or even to extortionate 'out of contract' rates," said its general manager Mark Alston.  

"This is often made worse by a lack of transparency and short timescales involved in the termination process," added Alston. "We believe customers should be free to choose whether to enter into a term agreement, or simply pay a variable tariff which is reflective of the actual costs of supply incurred, plus a fair margin for the supplier.  

ENER-G is also working to achieve greater transparency among suppliers for their third party charges. These can amount to up to 50% of an energy bill, yet are not always firm within many suppliers'  "fixed price" offerings.

As customers can be unaware that up to 50% of their budgeted cost is liable to increase, Ener-G wants suppliers to categorise their offers for greater transparency and to produce "100% genuine fixed offerings".