UK energy suppliers have a “moral responsibility” to renegotiate deals with companies locked into high fixed-price energy deals struck last autumn during a historic spike in prices, according to Andy Street, the Conservative mayor of the West Midlands.
The call echoes a warning from businesses that thousands of companies were struggling because they signed temporary contracts in the second half of last year when energy prices were at their peak – and thus failed to benefit from the recent downward price trend.
The government has spent nearly £6 billion subsidizing businesses power cost over the winter, but has since switched to a much less generous successor scheme.
Street said data showed that one in 10 companies in the West Midlands now they spend more than 20% of their turnover on energy costs. “This is not sustainable. . . so we have to tell the retail supplier, what is your moral responsibility in this?
He called on energy companies to “do the right thing and offer to renegotiate those contracts” and, if not, said the government should step in again and provide companies with generous targeted grants later this year.
Industry body Energy UK said that while suppliers often support refurbishment contracts where possible, many energy companies bought gas and electricity upfront – at a higher rate – when they agreed fixed-term contracts with customers.
Street said some companies would be willing to extend their contracts in exchange for a cheaper rate, known as a “blend and extend”.
The price of wholesale natural gas has fallen by more than 80% since last autumn, going from a peak of over £6 a temperature to around 80 pence a temperature. But according to the Federation of Small Businesses, some 93,000 businesses face closures or cuts because their energy bills are still stuck at the prices they charged six months ago.
“Our local chamber of commerce says up to a third of our businesses could pay up to five times the market price,” Street said.
“I have examples where manufacturing companies are already offshoring the production process to support themselves; it’s about jobs right now. I have a restaurant that is literally considering its future right now simply because of how energy has changed their cost structures.
The government said contract negotiations were “ultimately a matter for suppliers and their customers” but held “regular discussions” with regulator Ofgem and industry.
The government offers much more limited support at the same level for all businesses than is available during the winter months through its energy bill rebate scheme, which started in April. The one exception is a handful of “energy-intensive industries” such as steel and ceramics, which have their own support schemes.
Street said it was difficult to argue against reducing government support given the need to protect taxpayer finances. But she said there was an opportunity for ministers to use existing schemes in a more targeted way for companies most in need.
“This could be done through targeted support, via a national or regional hardship fund. Here in the West Midlands we would be delighted if our EBDS share for businesses was donated so that we can target businesses we know are under threat due to their energy costs.”
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