Analysis: Suppliers are milking SMEs

A CMA investigation has found too many small and medium-sized business customers are stuck on suppliers’ dearest tariffs and locked into hard-to-terminate deals. Saffron Johnson reports.

Energy suppliers are declining to engage with their small and medium-sized enterprise (SME) and microbusiness customers about energy bills and consumption, resulting in “significant detriment” and “exploitative pricing”, according to the Competition and Markets Authority (CMA). The CMA investigation into the energy market has found that the failings of suppliers means these customers were overcharged an estimated £220 million a year from 2007 to 2014, with microbusiness customers accounting for £180 million of that.

The CMA’s report suggested that the overbilling of SMEs has contributed an average of six per cent to the six large energy companies’ revenues throughout the seven-year period. Suppliers did not encourage customers to change consumption habits, nor did they introduce half-hourly settlements, and exploitative pricing policies came into play.

On the basis of its findings, the CMA penned a list of remedies to reduce the 45 per cent of SMEs and microbusinesses that are stuck on the most expensive default tariffs and in contracts that are difficult to end because of automatic roll-over clauses.

Its recommendations include ending auto-rollover contracts and restricting the use of termination fees. It has also come up with a range of suggestions to increase price transparency. For example, suppliers will be required to disclose to customers the prices of all their available acquisition and retention contracts, and microbusiness customers on expensive default tariffs will be included in an Ofgem-hosted database, accessible to rival suppliers. The CMA thinks this will increase the level of microbusiness switching.

Consultations on all these measures have begun and responses are invited by mid-November. A pilot of the data-sharing database is expected next year.

Speaking about the CMA’s measures for smaller business customers, the chairman of the investigation, Roger Witcomb, says: “The database remedy will bring cheaper price offers directly to those customers who have been paying too much for a long time. We’re also tackling problems that can lead to very small businesses paying more than they should. They will be able to see all the prices that are available to them, and will no longer be locked into the most expensive contracts.”

But the shortfalls of the energy retail market don’t stop at pricing and transparency. There is also a dearth of choice for business customers who want the ability to choose an energy supplier that is more aligned to their own personal and business ethics. And, like domestic customers, SMEs want better customer service from suppliers and options for digital engagement.

A new report from business supplier Haven Power shows that a significant majority of SMEs want their energy supplier to be more committed to renewables, for instance. The same report found that just 23 per cent of SMEs believe they are receiving an excellent deal from their supplier, and that 71 per cent think it should be simpler to switch.

Today, suppliers tend to differentiate their business tariffs on the basis of start dates, end dates, credit terms and consumption. Most offer three-year deals, although some offer contracts of up to five years.

Haven Power’s chief executive Jonathan Kini says this approach does not deliver what business customers want. He thinks it is time for suppliers to take a closer look at delivering transparent services to business customers and to go beyond compliance with basic, regulated hygiene factors.

In line with this, Haven plans to offer its own customers sustainable energy solutions that fit with their business needs “because people are very busy but want to do the right thing”, says Kini. “SMEs and consumers alike are willing to take extra steps to get a sustainable outcome… So I think it is only going to accelerate the fact that people are looking for companies to be making investments and actually drinking their own champagne.”

Described as the “beating heart of the UK’s economy”, SMEs deserve to get the same level of attention and service that suppliers aspire to deliver for their domestic customers. As CMA market remedies begin to take effect, small business customers should finally start to benefit from greater transparency and switching flexibility. At the same time, with companies like Haven starting to offer more differentiated business services, based on real needs and wants, choice should also expand.