Energy watchdog Ofgem has launched a consultation to help ensure microbusinesses get a fair deal when it comes to supply.
Following feedback, it has recognised that these businesses are struggling to get the same opportunities that domestic consumers get when it comes to switching suppliers or obtaining information on tariffs, and has put forward a series of proposals to remedy this.
The proposals include action on:
- · Broker conduct principle: Introducing a principles-based requirement for suppliers to ensure brokers they work with conduct themselves appropriately
- · Broker dispute resolution: Introducing a requirement for suppliers to only work with brokers signed up to an alternative dispute resolution scheme
- · Informed contract choices: Applying targeted sales and marketing rules to suppliers and brokers they work with via supply licence changes
- · Broker commission transparency: Clarifying and strengthening existing supply licence obligations to provide information about broker commission payments on contracts, bills and account statements
- · Cooling-off period: Introducing a 14 day cooling-off period for microbusiness contracts
- · Contract extensions: Requiring suppliers to maintain existing contract rates for up to 30 days while issues with a blocked switch are being resolved
- · Banning notification requirements: Banning suppliers from requiring microbusinesses to provide notice of their intent to switch
The proposals have been welcomed by the Association of Convenience Stores. Chief executive James Lowman said: “Energy brokers are important partners for local shops to secure the best energy contract, but retailers need to be equipped with the right information and given enough time to make informed decisions about their energy contracts.”
Providing as much information is certainly high on the list of priorities for Ofgem, as evidenced by these proposals and the logic behind putting them forward.
One area that Ofgem wants to hone in on is microbusinesses switching suppliers. In its consultation document, it explains: “We want microbusinesses to be able to move away from an old contract without facing unnecessary fees, obstacles or complications via a process that is smooth and swift.
“To facilitate that there shouldn’t be any unnecessary contractual barriers that prevent customers from switching suppliers. Any such barriers will cost microbusinesses time and money, lead to a poor consumer experience, and likely dissuade consumers from engaging in the switching process in the future.”
To do this, Ofgem said improvement is needed in the area of what is required from microbusiness owners to be able to switch, including awareness of consumer rights.
“We have received a range of evidence from across our evidence base suggesting that poor knowledge/misunderstanding and unnecessary complexities associated with supplier termination notice requirements is causing significant issues. Stakeholders have pointed to this resulting in microbusinesses switches being blocked with costly default contract rates being applied in the meantime.”
Ofgem also believe that the business customers should have the same rights as domestic customers when it comes to switching, rather than adding to an already loaded administrative pile.
“Currently suppliers can require microbusiness consumers to provide 30-days notice to terminate a contract. This means that if insufficient or no notice is given then suppliers may object to a switch and move the consumer to a (typically costly) Out-of-Contract contract when the fixed-term period comes to an end. We consider this to be an unnecessary obstacle to microbusiness switching.”
“To reduce the administrative burden on microbusinesses, suppliers and brokers when switching and cut the number of blocked switches, we propose amending the supply licence to prohibit suppliers from requiring a termination notice before terminating a contract. Notice of a proposed transfer from a gaining supplier would then be sufficient for a switch to proceed. This should speed up the switching process and help to prevent microbusinesses who wish to negotiate a new contract from spending periods of time on costly Out-of-Contractrates.”
Ofgem added that microbusiness owners should have some responsibility to ensure they’re on the best deal.
“We want a retail market where microbusinesses are aware and able to make switching decisions easily. This means knowing that they will need to periodically review their options and switch providers to access better deals. This includes easily understanding contractual arrangements including those which may typically carry very high energy costs.”
Knowledge is power
Ofgem research into microbusinesses also identified a lack of information around prices, with the sector lacking comparison tools that domestic customers can avail of, despite the Competition & Markets Authority requesting suppliers to use Price Comparison Websites.
It also expressed concern about brokerage services and the lack of customer knowledge in this area. “At the Contracting stage of the customer journey - where customers sign up to a new contract - there appears to be a general lack of knowledge about the nature and cost of brokerage services. Microbusinesses are uncertain or entirely unware of the typical commercial arrangements between brokers and suppliers, the impact they may have on the offers presented to microbusinesses, and the true costs of agreeing a supply contract when using a brokerage service.
“The lack of transparency around broker commission charges means that many microbusinesses don’t realise how much of what they pay via their energy bill goes to their chosen broker. Our evidence suggests that this leaves the consumer questioning the true intention behind brokers recommending a particular energy deal.”
It outlined proposals to remedy this issue. “First, building upon and developing new awareness raising materials for microbusinesses, for example increasing the information available on consumer group websites. Second, utilising the most effective channels to disseminate information, harnessing the latest technological developments.”
Ofgem has a simple goal with this proposal – make it easy for the consumer. “The consumer outcome we want to see at the browsing stage of the customer journey is that microbusinesses are able to quickly and easily search for a suitable energy deal in the market, using the online or offline channel best suited to them.
“Browsing the market for better deals and services should not be an overly time-consuming process. Being able to quickly identify options is crucial to most microbusinesses with limited time to spend on activities outside of their core business. The browsing process should not be overly complex either. Microbusinesses need to be able to identify key information like pricing details easily. Needing to provide large amounts of data is likely to complicate the browsing process and dissuade microbusinesses from switching.
“Currently, with the majority of the best deals seemingly available offline and requiring negotiation, together with the inability to access a whole of market comparison, microbusinesses are finding it challenging to compare deals on a like-for-like basis independently.”