Ofgem has launched a statutory consultation into the retail energy market for microbusinesses.
Initially identified as a sector requiring investigation in its Microbusiness Strategic Review, Ofgem launched a consultation in July 2020 on the issue. Following feedback and workshops with relevant parties, it has launched a more focused consultation with a series of proposals designed to improve the experience of microbusinesses.
Ofgem’s definition of a microbusiness requires a business to meet one of the following criteria:
- Fewer than 10 FTE employees and an annual turnover of less than €2 million
- Annual electricity consumption of less than 100,000 kWh, or
- Annual gas consumption of less than 293,000 kWh
A store with energy costs of around £10,000 a year each for gas and electricity will typically fall into the category of microbusiness.
Ofgem’s proposed measures
The areas the consultation will be focusing on are:
- Provision of principal contractual terms: Strengthening existing rules around the provision of principal contractual terms to ensure consumers receive this key information both pre and post-contract agreement in all cases
- Brokerage cost transparency: Clarifying and strengthening existing supply licence obligations to provide information about brokerage costs on contractual documentation
- Broker dispute resolution: Introducing a requirement for suppliers to only work with brokers signed up to a qualifying alternative dispute resolution scheme
- Cooling-off period: Introducing a 14 day cooling-off period for microbusiness contracts
- Banning notification requirements: Banning suppliers from requiring microbusinesses to provide notice of their intent to switch
- Information and Awareness: Working collaboratively with Citizens Advice to create new and updated information so that microbusinesses can access up-to-date guidance and advice alongside communications to help further boost awareness of how the market operates and their rights as consumers.
Pending feedback to this consultation, Ofgem intends to implement these reforms later this year with the full package taking effect in early 2022.
It said: “Alongside implementing these near-term reforms, we will continue to support government as it prepares to consult on the case for direct regulation of third party intermediaries, including brokers operating in the microbusiness retail energy market.
“We recognise that a well-functioning market will be more important than ever in the coming months as microbusinesses emerge from the challenges posed by the Covid-19 pandemic. We believe introducing each of the measures will play an important role in contributing to the longer-term recovery by greatly improving microbusinesses experience at each stage of their customer journey. We believe each measure represents a proportionate intervention that can realistically be implemented by suppliers and other industry participants who are also working hard to recover and rebound from the pandemic.”
The Association of Convenience Stores (ACS) cautiously welcomed the consultation and is submitting evidence to it. ACS chief executive James Lowman urged action on the suggestions. “This is a welcome step forward from Ofgem, but one that we have seen several times before. Many of the specific measures being proposed in this consultation have been being discussed and put forward in various guises for the last decade, but ultimately little action has been taken. We urge Ofgem to implement these reforms to the microbusiness energy market as soon as possible to give the smallest businesses the protections they need when dealing with energy companies and brokers.”