Ofgem will launch a review of the microbusiness energy market this year. The regulator will examine whether to put in place similar protections for the UK’s smallest firms to those afforded to households.
The review, should it lead to action, will be welcomed by those that have long called for oversight of third parties.
Many suppliers and brokers can reduce energy bills – particularly for the roughly one in four small businesses on expensive rollover contracts. Brokers can package up demand and get better deals for businesses, earning a commission or adding a percentage per kilowatt consumed in return.
But it is not clear that commissions or ‘uplifts’ are always disclosed and small businesses as a whole are being overcharged. The Competition & Markets Authority thinks they are overpaying by £500m a year, with suppliers making four times the margin on small firms than they do on large customers.
Because brokers are not regulated, businesses currently have little protection from bad actors. Many, particularly those setting up shop or taking on new premises, may be bombarded by calls from brokers. More than a fifth of small firms recalled receiving at least 50 calls according to research carried out for Ofgem in 2017.
Small firms may know very little about the energy market. If an unscrupulous sales agent tells them they are on ’emergency rates’ or that ‘National Grid will shut off their supply’ they can be pressured to sign up to expensive tariffs and locked into long-term contracts.
Firms can take complaints to the ombudsman if they think they have been unfairly treated. But should the ombudsmen fail to uphold their complaint, they have little recourse. (No-win, no fee ‘PPI for energy mis-selling’ companies have started to claim some success in getting money back from brokers for small businesses, but public evidence is scant.)
In the worst cases, businesses can find themselves paying thousands of pounds to exit contracts. Some end up shutting down as a result.
Ofgem now has the opportunity to take action following an indication from government last year that it may beef-up consumer protection.
“Ofgem supports the government’s recent Consumer Green Paper proposal to extend consumer law fining powers to us so that domestic consumer protections are strengthened, and additionally propose that this is extended to non-domestic protections,” said a spokesperson for the regulator.
“As part of our consideration of more fundamental reforms to the retail market, we will carefully consider how the scope and form of our regulation may need to change.
“This year, we will be conducting a strategic review of the microbusiness retail market to understand market challenges and consumer experience. The review will identify the case for short and medium-term actions. We expect to publish an opening statement over the coming months and will invite views and evidence from stakeholders to help inform our thinking.”
According to Ofgem: A non-domestic consumer is defined as a microbusiness if they meet one of the following criteria:
- Employs fewer than 10 employees (or their full time equivalent) and has an annual turnover or balance sheet no greater than €2 million, or
- Consumes not more than 100,000 kWh of electricity per year, or
- Consumes not more than 293,000 kWh of gas per year.
To put this in context, a business consuming these amounts of electricity and gas would pay about £10,000-£12,000 per year for each fuel, excluding VAT.