Small Businesses To Get A Fairer Deal From The Energy Market

Energy regulator Ofgem is consulting on major reforms to make the energy market fairer for small business customers. Although a review found that in general business consumers found it easier to engage in the energy market than households, Ofgem concluded that more protection was needed for smaller businesses.

Ofgem is proposing to widen the number of small businesses that benefit from its existing safeguards to ensure contract terms are clear. The rules currently apply to Britain’s smallest businesses - which typically employ 10 people or less*. Extending the rules will mean an extra 150,000 businesses will be covered, protecting customers that typically spend up to £10,000 a year on each fuel.

Ofgem is further proposing that all bills and statements that small businesses are sent also show clearly when the contract ends, so that fewer businesses get caught out and pay more for their energy than they need to.

Andrew Wright, Senior Partner, Markets, said:”Our retail market review showed that small businesses want fairer treatment from suppliers, clearer information about contracts, and more protection from misselling. Our proposed reforms seek to address these issues. We urge suppliers to show they are committed to restoring the confidence of business consumers by getting behind our proposals.”

Businesses have reported that switching suppliers can sometimes be time consuming, especially if they have been barred from switching by suppliers without a clear reason. An Ofgem licence condition prevents suppliers from blocking a switch unless there are legitimate reasons. Ofgem is closely monitoring the actions of all suppliers in this area and the regulator is already investigating British Gas Business over allegations that it incorrectly objected to some businesses switching.

Energy brokers play an important role in the business market and although they often ensure business consumers get a good deal, there are concerns that some use high pressure sales tactics or give misleading information. So Ofgem is also planning to clean up the practices of some energy brokers by developing an industry-wide code of practice for them.

To further increase protection, Ofgem is progressing its case for acquiring powers from Government to take enforcement action against brokers who mislead business customers. Ofgem currently does not have direct powers to take such action**

New standards of conduct have also been set out for how energy suppliers treat small business customers - with fines if suppliers break the rules. The standards will mean suppliers will have to scrutinise their processes to make sure they are fair when they contract with, bill and switch small business customers.

*What do the rules around clearer contracts say?
These rules currently apply to contracts for Britain’s smallest businesses (micro-businesses) which typically employ 10 employees or less. Companies up to this size typically spend around £5,000 per fuel on energy.

More information on exactly which businesses are covered is found here: http://www.ofgem.gov.uk/Media/FactSheets/Documents1/energycontractsforbusinesscustomersfs.pdf

The rules say that:
• Before entering a contract a supplier must explain key terms and conditions to the business, making it clear the contract is binding.
• Within 10 days of a contract being agreed, the business should receive written copies in plain and intelligible language.
• The supplier will contact the business with details of its new fixed-term offer at least 60 days before the end of the contract. Once the business receives this letter it has at least 30 days to contact the supplier to let it know if it wants to sign up to the supplier’s new offer, or if it prefers to switch to a new supplier once the deal ends. If the business does not contact the supplier to sign up to their offer, negotiate a new deal, or say it wants to switch, the maximum length of time the contract can be automatically rolled over for is one year.

** Business Protections from Misleading Marketing Regulations:
This legislation prohibits the advertising of products in a way that misleads businesses. Ofgem is seeking the powers to enforce this legislation from Government - to address misselling to businesses.