Since 2011, Ofgem have been developing their Retail Market Review (RMR) “to encourage and equip consumers to engage effectively so they can get the best deal from the energy market.”
Policy Overview
The latest consultation, in March of this year, set out the Gas and Electricity Markets Authority’s policies following extensive consultation with suppliers, consumer groups, third party intermediaries and their own research.
The policy proposals are:
- Expanding the definition of micro business
- Clearer and simpler processes
- Enforceable standards of conduct and transparency
- Fairer treatment for small businesses
- Monitoring of the transfer process
- The implementation of a TPI code of practice
The reasoning behind each is:
Expanding the micro-business terms
Ofgem’s desire is to amend the consumption element of the definition to “more accurately capture the smaller businesses” that Ofgem wish to protect.
The proposal is to raise the electricity consumption threshold from 55,000kWh to 100,000 kWh, and the gas consumption threshold from 200,000 kWh to 293,000 kWh.
Ofgem hope that this will mean that more business will be classed under the micro business protection that offers a maximum 12-month rollover contract, guaranteed information on renewal letters from supplier and greater clarity of information.
Our view: We believe the defining of businesses to be a folly. We also believe that suggesting business need protection is a misconception. We believe that businesses need a minimum standard of information against which they can make commercial decisions. We believe the bar should be set at a high level; this should include transparency of contract terms, prices, dates and key clauses. We do not believe that a categorisation of business customers into ‘haves’ and ‘have-nots’ is the way forward. A multi-national corporation could choose to ignore the minimum standard of information and elect to demand more but they should not be treated any differently to any other business. We believe this approach is simpler, more transparent, and focuses the regulator on required action and not needless, time-consuming categorisation.
Clearer and simpler processes
Ofgem want to help businesses stop being caught out by the roll over clauses in their contracts.
A roll over is a clause that allows the supplier to extend the business’ energy contract at a premium price for a fixed 12-month period where the customer has not taken the initiative in negotiating their contract.
To support this suppliers will be expected to show the business’s contract end date on every bill, along with the deadline date for the customer to send termination notice of their wish to end their contract agreement.
In addition, Ofgem propose that businesses be allowed to request termination of their contract at the end of the fixed term by notifying the supplier at any point during the contract, ensuring customers don’t miss the termination window due to it being too short or for a fixed window only.
Our view: We believe that the principle of simplicity and transparency is key to reforming the business energy market. Indeed these have been our watchwords in dealing with the regulator throughout the RMR process. We therefore welcome Ofgem’s belated expectation for suppliers to place contract end dates and termination dates on invoices and the removal of tight termination windows designed to trap unsuspecting businesses into premium priced roll over contracts.
However that is the point where our belief diverges from that of Ofgem. We do not think it is enough to simply promote better communication and effectively enshrine the right of suppliers to continue the tactics of trapping businesses on rollover terms. We believe Ofgem should ban these contracts outright and anything less is simply not good enough.
To that end we are working with No. 10 Downing St as founder members of the SME Energy Working Group set up by David Cameron and are pushing Ofgem to recognise the need for real change around roll over. We are confident that suppliers recognise the damage they are doing to UK businesses by these policies and as such confidently expect that Ofgem’s failure to lead will not be too detrimental to effecting real change in the business energy market.
Enforceable standard of conduct and transparency
The Standards of Conduct Guidance (SOC) states that suppliers must treat business energy customers in an ‘appropriate’ and ‘fair’ manner, and that suppliers must try to understand and respond to their business energy customer’s circumstances based on honest and transparent interactions.
These interactions cover those between customers, third parties and suppliers to ensure that the most appropriate course of action can be taken to meet customers’ needs.
Ofgem hope that this will ensure that business energy customers who are considered ‘vulnerable’ have some level of protection against security of supply, despite the fact that their requirements may not be as pertinent as those in the domestic energy space.
Our view: We don’t believe vulnerability of businesses exists in the same way as vulnerability of domestic customers. That is not to say businesses don’t need support to navigate the market, but they certainly don’t need to be patronised or pigeonholed. What they do need is minimum standards of information to enable them to act in the market with confidence whatever their size and background.
We also believe the wording of these Standards of Conduct are ambiguous and objectively unenforceable. In effect we see this as a blown up company mission statement and are concerned that is all it will end up being – words and no action.
Fairer treatment for small businesses
Ofgem sees this as covering all aspects of energy contracts including the handling of customer information, the process of businesses switching energy suppliers, the implementation of deemed contracts and the ongoing billing of the business energy customers.
Ofgem require that the suppliers must ensure that they do not mislead customers through verbal or written interaction and act promptly to ensure things are corrected if a mistake is made.
Ofgem see this policy being in addition to the SOC Guidance and reaffirms that all information and customer interaction should be honest and transparent.
Our view: These are what we would view as minimum standards that any customer, regardless of age, size or import, should be able to expect to receive from their supplier as a matter of course. Whilst we fully support Ofgem in raising these minimum standards we fear that the two-tier confusion they have created through the unnecessary micro business categorisation muddies the waters for what should be heralded as minimum standards for all.
TPI Code of practice
Following on from Ofgem’s move to make TPIs subject to the Business Protection from Misleading Marketing Regulations 2008 (BPMMRs), Ofgem have called for a Third Party Intermediary Code of Practice to give businesses confidence when using TPI or broker services. This is designed to ensure TPIs are honest, fair, appropriate and transparent in their dealings with businesses.
Our view: We fully support this approach however we fundamentally believe that any code of conduct should be extended to cover all sales interactions with a business energy customer, whether with a supplier, TPI or any other party. Only then will the business energy customer have confidence that they are being dealt with fairly and objectively. To not include suppliers within the code’s remit is setting a dangerous precedent of two-tier standards in the market.
We are also disappointed that Ofgem have not acted sooner and more decisively in getting a code of conduct up and running. Business Juice is a founder member of the E.ON TPI Code that was brought about by the lack of decisive activity from Ofgem. It is a sad fact however that E.ON remain the only supplier committed to bringing these standards to bear for their TPI relationships and that no supplier is obliged to meet the same standards of service that TPIs are.
This cannot continue, decisive and positive action is essential to prevent a two-tier market opening with poor standards enshrined by Ofgem.
The timescales
These changes are due to take effect between 26th August 2013 and 31st March 2014.
Following this Ofgem have committed to reviewing the changes by 2017.
Our view:
This is not a quick enough timescale to push through these much needed changes. Given Ofgem’s recommendations do not even cover fundamentals such as: Back billing, roll over contracts and punitive out of contract rates it is difficult to understand how and why these ‘light touch’ changes cannot be implemented far sooner.
In terms of the review in 2017 we believe it is wholly inadequate to wait 4 years before attempting to understand whether the RMR is or will be having a positive impact on competition and engagement in the business energy market. This should be at the very least an annual review with a commitment to act where circumstances dictate it is necessary to do so.
To read more about the Retail Market Review, go to: