Ofgem caution over extending business customers remit

Jonathan Brearley has expressed caution about calls to extend Ofgem’s remit over business energy prices.

This week’s evidence session of the business, energy and industrial strategy (BEIS) select committee’s inquiry into energy price support heard businesses call for the energy regulator to intervene further to curb energy price hikes.

Tina McKenzie, national vice chair of the Federation of Small Businesses, said some suppliers had “taken advantage” of “astronomical” recent increases in energy costs.

“We thought that was unfair,” she said, adding that the government must take a fresh look at tightening up entry to the energy supply market.

“We need to ensure that business have healthy cash reserves and don’t continue to take advantage.”

McKenzie called for Ofgem to have “more teeth and more time and energy” so that it can stop retailers “taking advantage” of small businesses, which “sometimes don’t know what they are signing up to” when entering into contracts.

The recent drop in wholesale energy costs provided a “window of opportunity” for the regulator to sort out the business energy market, she said: “We hope we don’t have another shock and prices don’t go up. It’s the perfect time for Ofgem to get it right.”

McKenzie was backed up by Stephen Phipson, chief executive officer at Make UK, who called for Ofgem’s remit to be “broadened”.

Noting that one small manufacturer has seen its annual energy bills increase from £160,000 to £1.1 million while others are being asked to pay £100,000 deposits, he said: “The solution is regulation.”

Brearley told the committee it had been “genuinely hard” for retailers to hedge contracts when energy prices were spiralling but the regulator had to address whether suppliers had “abused” withdrawals by competitors from the business energy market.

“If you are in a market and you know your competitors aren’t bidding, it will influence your behaviour.”

While there is a “case” for looking at the problems facing very small and micro businesses, Ofgem has “plenty” on its plate, he said: “We would be cautious about further pricing regulation in the market until we have something that works.

“The risk is if you continue to regulate for every problem, you end up with a much bigger rulebook.”

Chancellor Jeremy Hunt recently wrote to Ofgem asking for an update on whether “further action” is needed to make sure the energy market is working for businesses.

Ofgem currently regulates a small portion, typically around one-tenth, of business energy bills but not the remainder.

Kate Nicholls, chief executive of UKHospitality, said energy bills for pubs and restaurants had gone up from typically 4 or 6% to 16 to 17% of turnover so that it is now the biggest cost for such businesses and more than rent and rates combined.

She added that three quarters of hospitality business failures last year were in the last quarter, which was “highly unusual” because they usually happen at start of the year after companies have netted cash by trading through Christmas.