SMALL BUSINESSES PAY A ‘LOYALTY PENALTY’ FOR ENERGY

OFGEM recently announced a strategic review of how the energy market works for microbusinesses. The review will explore whether micro businesses are being abused by some energy brokers and suppliers – something they have been accused of doing in the past.

Ofgem, the regulator for gas and electricity markets in Great Britain, has stated concerns over how easily small businesses can access the energy market to find a better deal for their business energy costs, and coupled with inadequate levels of protection, feel that ‘microbusinesses’ can end up paying higher prices than they should - whilst those not engaging with the market at all pay a high ‘loyalty penalty’ than disengaged domestic consumers. Initial analysis carried out shows that market information is often complex and inaccessible, resulting in customers paying high prices and struggling to make informed decisions.

Wanting to tackle these issues, the regulator recently announced a strategic review of how the energy market works for microbusinesses.The review will explore whether micro businesses are being abused by some energy brokers and suppliers – something they have been accused of doing in the past.

There is recognition by the regulator that energy brokers provide an invaluable service to small businesses in accessing and assessing the market, however, Ofgem have long held concerns over sharp practise seen from some third-party intermediaries. Energy suppliers and consumer groups have called on Ofgem over the last few years to take steps in regulating third party intermediaries. Whilst the majority work in the best interests of their customers, too many small businesses have found themselves victims of mis-selling, being locked into overly expensive and inappropriate contacts with extremely high hidden commissions.

Ofgem referred to recent research and evidence and said 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 to engage in the market to find a better deal. During the regulator’s annual micro and small business survey, it was identified that a significant proportion of microbusinesses are not engaging with the market to access the best deals - out of those businesses who aren’t switching, 43% believe all suppliers charge the same and 51% believe the differences between tariffs are marginal.

Last year microbusinesses paid £3.5 billion in total in electricity and gas bills.

Anthony Pygram, director of conduct and enforcement at Ofgem, 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."

The review will run until 2021 and isn’t going to bring any instant fixes, so if you’re a business owner, engage an energy broker who comes highly recommended to help you with your business energy.

Gemma Newsham is an independent Retail Energy Regulation & Compliance Consultant, and a Partner at energy broker Dunore Consultancy Ltd.

To find out more, contact us for a no obligation and transparent conversation about your business energy needs with reference ‘Business MK’