Ofgem to strengthen protections for microbusinesses

Ofgem has unveiled a series of measures designed to protect millions of microbusiness customers from “unscrupulous” energy brokers, as well as enabling smoother switching.

Proposals being introduced today (July 29) include a requirement for suppliers to only work with brokers signed up to an alternative dispute resolution scheme.

In addition, a 14-day cooling off period for contracts is being introduced, as well as a ban on suppliers from requiring microbusinesses to provide notice of their intent to switch.

The announcement follows Ofgem’s review of the microbusiness energy market which it started last year.

Microbusinesses are defined as non-domestic consumers who have fewer than ten employees, with an annual turnover of less than 2 million euros, or use no more than 100 MWh of electricity per year and/or no more than 293 MWh of gas per year.

In total, two out of three microbusinesses use an energy broker when choosing their current energy contract and while many of them benefit from the advice of reputable brokers, Ofgem’s review found too many cases of microbusinesses being hampered by a lack of transparency when using brokerage services.

As a result, they end up being locked into poor value deals because they are not fully aware of what they are signing up to. Furthermore, Ofgem found that a small number of microbusinesses were paying thousands more than they needed to in broker commission charges.

The regulator said the proposals would require suppliers to ensure the brokers they work with conduct themselves appropriately when interacting with customers and make commission fees and key contract details clearer.

Philippa Pickford, Ofgem’s director of future retail markets, consumers and markets, said: “Providing greater transparency and tackling unscrupulous brokers will help microbusinesses get a better, fairer energy deal. This is more important than ever as microbusinesses emerge from the challenges posed by the Covid-19 pandemic.

“These proposals are part of Ofgem’s wider work to improve the energy retail market through smart metering, extra support for vulnerable customers, plus faster and more reliable switching.”

Welcoming the proposals Ed Dodman, director of regulatory affairs at the Energy Ombudsman said: “Giving microbusinesses access to independent redress in the event of a dispute with an energy broker is a positive step that will help to ensure fair treatment and address some of the issues we’ve seen around mis-selling of contracts.

“The proposed requirement for energy suppliers to work only with brokers signed up to an alternative dispute resolution scheme is also welcome as it will help to raise standards.

“We will maintain a constructive dialogue with Ofgem, non-domestic energy suppliers and brokers as today’s proposals are fleshed out.”

Gillian Guy, chief executive of Citizens Advice, said: “Cooling-off periods, brokers being part of alternative dispute resolution processes and other measures would provide microbusinesses with significantly improved protections.

“Microbusinesses are diverse and range from pubs and convenience stores to sole traders like photographers and many will have been hit hard by the Covid-19 pandemic. As well as these changes, Ofgem must make sure microbusinesses struggling with debts are treated fairly by suppliers in the months ahead.”