Perfect dealings?

Among utility suppliers such as gas, electricity, water and telephone, competition is meant to bring lower costs. And it can, but at the price of a fair amount of confusion. Competing suppliers are not obliged to quote comparable terms and have become adept at devising rates that resist straightforward comparison.

For hotels and restaurants, though, the exercise is worthwhile. As well as cooking and laundry, public areas have to be heated and lit, regardless of whether they are occupied. Guests who have endless baths leave hoteliers with little control over gas, electricity and water consumption. All the more important to keep unit costs down.

Following privatisation, businesses whose gas demand exceeds 2,500 therms (about £1,000) a year can choose their supplier. The free market for all customers, regardless of size, started in Cornwall, Devon and Somerset in 1996 and was extended to Avon, Dorset, Kent and Sussex. It will roll out to the rest of the country by April 1998.

Electricity users whose peak demand is over 100kW - spending around £15,000 a year - can also choose their supplier. The competitive market will be opened to all users next year.

Gas and electricity are delivered through common pipes and cables. Variations in prices depend in part on the price at which suppliers buy gas or electricity, but also on the efficiency of their billing operations and commercial decisions on target markets. Water remains a local monopoly, mainly because its physical nature prevents it from being networked in the same way.

The Queens Hotel, a 149-bedroom hotel in Crystal Palace, south London, has saved more than £16,000 a year on gas over the past three years, and is paying less than half the published tariff, while electricity costs were driven down by 9.2% in 1995/96, the first year of deregulation, and again by a further 13% this year, giving total savings of around £6,500.

But finding the best deal is not easy. There are 18 electricity suppliers, and around 70 in the commercial gas market. Contracts are complicated, and even preparing a tender document is not a job for the uninitiated. Many customers pass the job to one of the specialist utility consultancies who make it their business to negotiate best terms in this complex and fast-changing marketplace.

Jon Henderson, senior partner at analysts ECM, which negotiated the Queens contracts, says: "Some users might have the ability to spot the best quote out of 18 offered, but they still won't know if it's the best they could get."

"Suppliers are not bound to offer the lowest price, either initially or in negotiation," warns Andrew Johns of consultancy National Utility Service (NUS). "It is up to the buyer to select and negotiate favourable terms and conditions."

A consultant will analyse competing quotes to determine which is the best, then benchmark it against all other contracts on his client database and then if necessary, go back and renegotiate it.

On gas, Henderson believes 2,500-therm customers should be able to obtain discounts of between 38% and 52% on published prices, while in the smaller domestic market reductions of between 20% and 22% are available. Electricity discounts against tariff are 12-28%, depending partly on location and usage.

Consultants' terms vary. Sharing savings on a 50:50 basis has been common, but there is a move towards a fixed fee. Rates start at around £400 for a single site with one meter. Other options are a mixed system, with a smaller fixed fee and a small bonus, maybe 10%, or a fully managed bureau service where bills go direct to the consultant, who checks them and negotiates terms and conducts any arguments with suppliers. Given the chaotic conditions that have attended the changeover, this has its attractions.

Customers can opt to do it themselves. It is likely to be time-consuming, and they may not end up with the best saving, but at least they keep all of it. Lists of suppliers are available from Offer and Ofgas.

Henderson believes that paying for professional expertise is better. "The customer has been given too much choice, but not the means to exercise it," he says.