What is Ofgem’s Micro-business Review and What does this Mean for Your Business?

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Citizens Advice estimates that close to 1 million UK businesses are in danger of being ripped off in the business energy markets. This is not acceptable. UK businesses deserve fair and transparent business energy switching services and a proper energy monitoring system. 

Micro-businesses often rely on energy brokers to find the best non-domestic energy contracts, yet the lack of transparency on broker fees and common cases of broker mis-selling can contribute to businesses failing. With Ofgem’s latest announcement, rogue energy brokers are a thing of the past.

The Importance of UK Micro-businesses

Micro-business owners play a crucial role in the United Kingdom’s economy. Data shows that last year, there were over 5.6 million micro-businesses in the country. The largest energy suppliers provided micro-businesses with approximately 1.4m electricity and 0.5m gas meter points, accounting for expenditure of £3.8 billion. This sector of the economy needs more care and attention.

According to Ofgem, your business is classed as a microbusiness if:

  • It uses less than 100,000 kWh of electricity a year OR
  • It uses less than 293,000 kWh of gas a year OR
  • If your business has fewer than 10 employees (or their full-time equivalent) and its yearly turnover, or yearly balance sheet, is not more than €2 million.

What is the aim of Ofgem’s Policy Consultation?

Over the years, the regulatory framework for protecting micro-businesses has been growing. Research and surveys have shown that despite the evolution, the market is not working well for some micro-business owners.

Unfortunately, there are a lot of factors contributing to the problem. For instance, some minority brokers operating in the micro-business market have a detrimental impact on consumers. They are not transparent about commissions. A large number of micro businesses do not switch. These businesses do not switch suppliers because they believe that all companies charge the same rates.

For a more thorough understanding of these consumer harms, Ofgem has developed eight theories.

Why do microbusinesses suffer in the energy markets?

Micro Businesses suffer in the energy market for the following reasons:

1) The smallest micro-businesses do not seek to do energy switching because the market is too complicated. Energy providers have many offerings, prices  are often complex and energy consumption link is not clear. Microbusinesses are often at a disadvantage when trying to find the best deals.

2) While in the domestic market, the energy switching process is fairly straightforward, in the business energy world, the switching process is often unnecessarily complex and involves brokers. 

3) Hidden costs & unnecessarily long contracts. Often brokers entice micro-businesses to switch into longer contracts with lots of hidden costs. Broker commissions can be as high as 5-10+% of the overall energy costs.

Awareness:

4) There is a lack of awareness in a significant number of micro-businesses. They are not aware of how competitive the market is and that switching can save real cash if done right. Thus, it leads to fewer engagements and substandard experiences.

Browsing:

5) Despite Ofgem’s attempts, pricing is still not fully transparent. For this reason, it isn’t easy to compare prices. This makes it hard for a large portion of micro-businesses to determine the best deals. So, it is only when they look at their energy monitoring system that they find the need to switch. 

Contracting:

6) The contracting process involves brokers, utility companies, credit checks and lots of form filling with outdated authorisation processes such as Letters of Authority. This can be hard, costly and unclear. Thus, it results in some businesses ending up with costly contracts and unfair terms.

There is a heavy reliance on brokers for micro-businesses in switching. Brokers are not regulated. Broker fees are hidden.

Energy Debt:

8) Micro-businesses struggle with energy debt because of the lack of rules regarding debt management in the market.

Thus, due to these consumer harms, Ofgem proposes the following measures as part of a package of reforms. These measures are for improving the experience of micro-businesses in the market. This means that micro-business owners no longer have to look at their energy monitoring system with worry.

What are Ofgem’s proposed policy measures?

  • Broker conduct principle – These principles are requirements for suppliers, so they can ensure that the brokers conduct themselves properly.
  • Broker dispute resolution – This will require suppliers to only work with brokers that have an alternative dispute resolution scheme.
  • Informed contract choices – This policy measure will apply targeted sales and marketing rules to the suppliers and brokers they work with. It will do this through supply licence changes.
  • Broker commission transparency – One of the pressing problems of micro-business is transparency. With this policy measure, it will clarify and strengthen existing supply licence obligations. It will give information about broker commission payments.
  • Cooling-off period – There will be a 14-day cooling-off period for micro-business contracts.
  • Contract extensions – Energy suppliers will have to maintain existing contract rates from up to 30 days with this policy measure. This is to give consumers more time while fixing problems with the block switch.
  • Banning notification requirements – Through this policy measure, micro-businesses are no longer required to provide notice of their intent to switch. It bans suppliers from asking such notices.

By considering Ofgem’s proposals, you can see that their purpose is to create a market that’s transparent. Micro-businesses will gain better positions in dealing with energy deals.

This is also timely, especially in the wake of COVID-19. Micro-businesses are emerging from the challenges posed by the pandemic. That is why a well-functioning market has never been more relevant. The only downside for it is that the proposals are still subject to consultation. We have to wait until 2021 for the implementation. But at least we are in the right direction.

How does EnergyBillKill Support Ofgem?

At EnergyBillKill, we support wholeheartedly the Ofgem’s proposals. We follow their principles and have always been transparent with our customers. As a micro-business owner, you don’t have to worry about overpaying for energy and stressing when you look at your energy monitoring system. 

We understand that some energy brokers in the market are not clear with their methods. This often leads to miss-sold contracts. With EnergyBillKill, you won’t have to stress about hidden charges. You can conveniently switch energy suppliers using our technology. If you are looking for some of the best energy deals, use our price comparison tool to compare the best deals, or download our app. It’s available for Android and iOS users.

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