The Competition and Markets Authority has urged regulators to move all small businesses to half hourly settlement, end automatic rollover contracts and to allow rival suppliers and TPIs access to customer details so that they can target them with cheaper energy supply contracts.
Should the watchdog’s remedies be implemented, the intended outcome is to increase competition and reduce costs for small firms.
The CMA said that suppliers were making high profits from disengaged small business customers (twice the margin they make in the domestic market and four times the margin made in the I&C market). On average, firms were paying around a third more on rollover tariffs for electricity than retention tariffs, and around a quarter more for gas, according to the CMA’s figures. Meanwhile those on deemed tariffs were paying at least two thirds more for electricity and gas than those on retention tariffs.
The CMA said small firms had poor visibility of market prices, so proposes making business suppliers disclose all tariffs on their websites, allowing business to compare the market. It hopes that will lead to similar penetration of price comparison websites as in the domestic market, driving down prices.
As some customers find themselves locked into auto-rollover contracts due to the very short window they are given to switch, the CMA said that window should be extended and that suppliers are not allowed to lock in customers with termination fees and no-exit clauses.
Suppliers will have to disclose details of customers sitting on most expensive tariffs to rivals, giving them the green light to target them with cheaper deals.
Impact of half hourly settlement
The outcome of mandatory half-hourly settlement should be more accurate bills businesses and the ability to pay less for energy by using it outside of peak times.
Currently, most businesses are settled according to a profile class for electricity, rather than their actual consumption. That reduces incentives on suppliers to innovate and means businesses are not always paying reflective prices for their power use.
By moving to half hourly metering and settlement, businesses will face more reflective time-of use charges for power. That is, expensive power in the morning and evening peak periods, but cheaper during the late morning and mid-afternoon and very cheap overnight. The move would also allow demand-side response aggregators access to the entire non-domestic sector (find out more about demand-side response here).
Good for small firms, bad for sharp suppliers?
Small businesses will welcome any reduction in business energy tariffs. Many face significant challenges in securing competitive deals and the sector has been dogged by accounts of sharp practises, opacity and poor customer service.
If the CMA’s proposals are fully implemented, the result may be a feeding frenzy of customer acquisition activity as suppliers and TPIs are given contact details of customers known to be on poor value contracts.
See the full report here.