Fairer energy deals for microbusinesses
Ofgem has unveiled plans to tackle unscrupulous energy brokers so millions of microbusinesses can get a better deal1.
- Ofgem proposes measures for millions of microbusinesses to get a fairer energy deal
- Package of support would help tackle unscrupulous brokers, strengthen dispute resolution, and deliver smoother switching
- Fairer energy bills more important than ever as microbusinesses recover from the impact of COVID-19
Two out of three microbusinesses use an energy broker when choosing their current energy contract and many of them benefit from the advice of a reputable broker. However, an Ofgem review found that in too many cases, microbusinesses are hampered by a lack of transparency when using brokerage services and end up being locked into poor value deals because they are not fully aware of what they are signing up to2.
Ofgem found that a small number of microbusinesses were paying thousands more than they needed to in broker commission charges. These proposals will help all those using a broker to get value for money when using brokerage services.
Yesterday’s proposals will make shopping around for an energy deal simpler, quicker, and fairer for microbusinesses.
The proposals would require suppliers to ensure that brokers they work with conduct themselves appropriately when interacting with customers and to make commission fees and key contract details clearer.
Where things go wrong, microbusinesses will be able to resolve disputes with energy brokers through an independent body3.
Microbusinesses will also find it easier to switch as administrative barriers are removed.
Philippa Pickford, Ofgem’s Director of Future Retail Markets, Consumers & Markets yesterday said:
“Providing greater transparency and tackling unscrupulous brokers will help microbusinesses get a better, fairer energy deal. This is more important than ever as microbusinesses emerge from the challenges posed by the Covid-19 pandemic.
“These proposals are part of Ofgem’s wider work to improve the energy retail market through smart metering, extra support for vulnerable customers, plus faster and more reliable switching”.
Case study 1
A Business Energy Claims (BEC) case study appears to show a broker only offering one deal to a golf club despite claiming it would search the entire market. It later transpired that the deal contained ‘hidden’ commission of 50% of the golf club’s energy spend, and the microbusiness felt the five-year length of the contract was not made clear. BEC estimate that the golf club owed £24,000 in ‘hidden’ commission charges.
Case study 2
A further BEC case study4 showed that Stranton Social Club’s energy bills included 41% commission to a broker, which was not disclosed at the point of sale, nor disclosed or documented on bills or on the contract.
- According to UK Government data, there were over 5.6 million microbusinesses in the UK by 2019, accounting for 96% of all businesses, 33% of employment and 22% of turnover. For these measures, microbusinesses are defined as non-domestic consumers who have fewer than ten employees, with an annual turnover of less than 2 million euros, or use no more than 100 MWh of electricity per year, and/or no more than 293 MWh of gas per year. Not all microbusinesses have a non-domestic energy supply contract, but we estimate that our proposals will help the approximately 1.5 million microbusinesses with a non-domestic electricity or gas supply contract to secure a fairer deal.
- In 2019 Ofgem announced a strategic review of the microbusiness retail energy market. Ofgem has since gathered robust evidence by analysing industry data, and from listening to microbusinesses and key stakeholders.
- The package of measures set out in the policy consultation includes:
- 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
- Broker commission transparency: Clarifying and expanding 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 a switch is being processed
- Banning notification requirements: Banning suppliers from requiring microbusinesses to provide notice of their intent to switch
- Information: Ofgem also intends working collaboratively with leading consumer groups to improve awareness raising materials and information provision.
For media, contact Michael Anderson: 020 7901 7079
Media out of hours mobile: 0792 882 9894 (media calls only)
Ofgem is Britain’s independent energy regulator. Our role is to protect consumers now and in the future by working to deliver a greener, fairer energy system. We do this by:
- working with Government, industry and consumer groups to deliver a net zero economy at the lowest cost to consumers.
- stamping out sharp and bad practice, ensuring fair treatment for all consumers, especially the vulnerable.
- enabling competition and innovation, which drives down prices and results in new products and services for consumers.
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