Ofgem announces strategic review of microbusiness energy market
Ofgem has announced its strategic review of the microbusiness energy market to better understand and address the issues faced by microbusinesses.
- Ofgem is concerned some microbusinesses are struggling to engage with the market and paying more for their energy than they should.
- Our evaluation of the impact of the CMA’s price transparency remedy suggests that wider issues remain in the £3.5 billion microbusiness energy market.
- Ofgem presents its initial analysis on consumer harm and seeks further views and evidence on the challenges microbusinesses face.
Our initial analysis shows that market information is often inaccessible, resulting in customers paying high prices and struggling to make informed decisions.
Microbusinesses play a central role in the UK economy. According to government data, there were over five million microbusinesses in the UK in 2018, accounting for a third of employment and 21% of turnover. Last year microbusinesses paid £3.5 billion in total in electricity and gas bills.
Ofgem has concerns that the energy market isn’t working as well as it should for these customers.
The complexity of the market with the wide variety of contracts and lack of accessible helpful information about prices means many microbusinesses find it hard and costly to engage in the market to find a better deal.
Ofgem has found that microbusinesses who do not engage in the market still pay a higher “loyalty penalty” than disengaged domestic consumers.
Following its investigation into the energy market, the Competition and Markets Authority ordered suppliers in 2016 to provide clear prices to microbusiness customers through a quotation tool on their websites or through price comparison websites to help them engage in the market.
Ofgem implemented the remedy in 2017 and recently (03 May 2019) published an evaluation of its effectiveness. The regulator has found while the remedy has improved the level of price information that is available to microbusinesses, it has had a limited impact on microbusiness engagement levels and has failed to address some of the fundamental problems in the market.
We will gather further evidence through the call for inputs and other evidence gathering activities before publishing our action plan in winter 2019.
Ofgem has already introduced a number of reforms to help microbusinesses get a better deal. This includes stopping suppliers from automatically rolling over microbusiness customers onto expensive deals, banning suppliers from backbilling microbusiness customers for energy used more than 12 months previously and introducing an overarching principle to treat microbusiness consumers fairly.
The review and any subsequent actions will complement other reforms being taken forward by Ofgem and government focused on micro and small businesses including smart meters, and the half hourly settlement and switching programmes.
Anthony Pygram, director of conduct and enforcement at Ofgem, recently said:
“Microbusinesses are the backbone of the country’s economy. Yet too many are still finding it hard to navigate what is a complex and at times opaque market to get a better energy deal and are suffering significant consumer detriment as a result.
“Our review announced today, combined with our continued work with the government and industry, aims to deliver a properly functioning competitive retail energy market which works for all microbusinesses.”
Notes to editors
- A non-domestic consumer is defined as a microbusiness if they:
- employ fewer than 10 employees (or their full time equivalent) and has an annual turnover or balance sheet no greater than €2 million; or
- uses no more than 100,000 kWh of electricity per year; or
- uses no more than 293,000 kWh of gas per year.
This applies to a premises other than domestic premises.
- we have published two documents:
- Opening Statement and accompanying call for inputs including a survey monkey for microbusiness
- Evaluation of the CMA Price Transparency Remedy. In 2016 the Competition and Markets Authority published its investigation into the energy market. One of its findings was that microbusinesses were not able to easily access information about energy prices. In response, the CMA introduced the Price Transparency Remedy in June 2017. It requires suppliers to provide clear prices to microbusiness customers through a quotation tool on their own websites or through Price Comparison Websites (PCWs).
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