Small and microbusiness customers are paying too much for their energy bills, the Competition and Markets Authority (CMA) has concluded.
Its year-long investigation identified a combination of features of the gas and electricity markets to SMEs that give rise to an “adverse effect on competition (AEC)”.
These include low levels of interaction from microbusinesses and a lack of transparency in the market, thereby “giving suppliers a position of unilateral market power concerning their inactive microbusiness customer base which they are able to exploit through their pricing policies,” it said.
“These features act in combination to deter microbusiness customers from engaging in the SME retail gas and electricity markets, to impede their ability to do so effectively and successfully, and to discourage them from considering and/or selecting a new supplier that offers a lower price for effectively the same product.”
The investigation also found that the big six energy companies made an average profit margin of 8% from retail sales of electricity to small business between 2012 and 2014 - “significantly” more than the average margin made on sales to domestic, industrial or commercial customers.
Margins on sales of gas to SMEs meanwhile were 10%, compared to the margins made on sales to domestic consumers which were 4.4% on average.
The CMA also identified “a general lack of price transparency concerning the tariffs that are available to microbusinesses”.
“In particular, the limited availability and low usage of price comparison websites makes it more difficult for SMEs to get a view of prices across each market. Suppliers have recently made it easier for SME customers to get quotes, although we do not know if customers are widely aware of this development,” it said.
Concerns about third party intermediary (TPI) malpractice has also reduced the level of trust in all TPIs and discouraged engagement more generally, it added.
The CMA has proposed a number of new measures to help businesses get a fairer deal for energy, including prohibiting energy contracts being automatically rolled over and a transitional price cap for those who do not switch suppliers or tariffs at the end of their current contract.
The maximum price of this so-called “safeguard” tariff would be set by regulator Ofgem.
The CMA will consult on its proposals and publish final recommendations before the end of the year.