Ofgem's Review of Microbusiness Energy Market

Ofgem has announced a strategic review of the energy market in relation to what they call ‘microbusinesses’.

The review has been designed to help the regulator better understand the market, and therefore be better place to assist them with the challenges and issues they may face.

They say that the energy market is notworking well for these smallest of businesses, and that too many are stuck on expensive tariffs. They say this is due to a lack of engagement, brought about by a confusing energy marketplace that consumers find hard to understand.

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 is taking place from now until June21st, after which time the results will be collated and analysed. It is hoped Ofgem will be ready to implement an action plan before the winter.

According to Ofgem, a microbusiness is one which:

• Employs less than 10 people (or the full time equivalent of this)
• Has an annual turnover of less than £2m
• Uses no more than 100,000kWn of electricity per year
• Uses no more than 293,000kWh of gas each year

The last three points are either / or situations, so a business which turnover in excess of the £2m threshold can still be classed as a microbusiness if it uses less than either the gas or electricity amounts. Similarly, they may use a lot more energy than these thresholds, but if they turnover less than £2m a year, they are still a microbusiness. The employee number is always considered.

In terms of energy supply, a microbusiness would be on a non-domestic tariff, and would work out of premises which are non-domestic. A sole trader working from home, therefore, would not be classed as a microbusiness.

According to the FSB, there are 5.6 million small and microbusinesses in the UK, and around 4.3 million who have no employees other than the owner themselves. A paper issued by the House of Commons puts the number of microbusinesses in the UK at 5.4 million, employing a total of 8.8 million people.

 The regulator says that the energy market isn’t working as well as it could for businesses in the microbusiness category. They believe the market to be too complex, and that the wide range of contracts and difficulty in accessing information about pricing makes it hard for these customers to make informed choices.

They have conducted initial research which has led them to these conclusions, saying that too many microbusinesses are on expensive or incorrect tariffs. According to their figures, microbusinesses in the UK pay a combined total of £3.5bn in gas and electricity charges each year, with many paying a ‘loyalty penalty’, i.e. being stuck on an expensive SVT, as they are not engaged in the market.

Back in 2016, the Competitions and Markets Authority (CMA) ordered suppliers to be clearer in their pricing to microbusinesses. This was implemented by Ofgem in 2017, but it seems it still hasn’t worked. In Ofgem’s words, “it has had a limited impact on microbusiness engagement levels and has failed to address some of the fundamental problems in the market.”

Previously Ofgem have investigated poor practices by energy brokers who work in the SME and microbusiness sector. They also revised suppliers reporting arrangements for complaints, which was largely targeted at domestic customers but included microbusiness consumers too.

Other reforms aimed at consumers have benefitted microbusinesses too, such as the ban on back billing more than 12 months and stopping suppliers from automatically rolling customers onto expensive default tariffs.

Initially Ofgem are conducting research to identify and gather information on the microbusiness sector. They have called for inputs to an online survey for microbusinesses in the UK. Responses to the survey are invited until the closing date on 21st June.

The regulator plans to analyse responses to the survey and other evidence gathering activities in order to put an action plan into place by winter 2019.

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