OFGEM, the regulator for gas and electricity, were concerned that “micro-business” customers are unable to participate effectively as buyers in the business gas and business electricity supply market because of certain terms and conditions in their supply contracts.
With the realisation that many of the Micro businesses customers adopt the same mind set as the domestic/household customer OFGEM needed to afford them the same level of protection.
So what is a Micro Businesses as defined by OFGEM?
A micro business is defined as a business employing fewer than 10 full time staff with an annual turnover of less than 2 million Euros (approx £1,800,000), or energy use of less than 200,000kWh’s of gas a year or 55,000kWh’s of electricity a year.
The market probe has resulted in the implementation of a new set of rules that go some way to alleviate the issues facing micro-businesses but it is our opinion that it does not go far enough to afford the protection that these consumers deserve.
OFGEM had identified the main areas of concern after an extensive probe of the market but have not used the information and made strong enough rule changes. The one area of concern is that OFGEM have still not gone far enough to protect the customer when their contract is approaching the end of the fixed term end date.
The assumed renewal tactic employed by the supply companies has been widely criticised by customers for many years and the initial proposal written by OFGEM for industry consideration in the summer 2009 did not allow the supplier to assume the contract renewal but this was watered down in the final release in October after the industry had an opportunity to counteract the proposal.
The majority of businesses in the UK are micro-businesses and the OFGEM probe uncovered evidence that they were finding it difficult to understand and participate effectively in the market. This was largely due to suppliers having different contract termination clauses hidden within the small print.
As a result of the probe OFGEM has increased the protection for Micro Businesses with the following new rules:
- Before entering into a contract a customer must be informed of the key terms and conditions
- Within 10 days of the contract being agreed the customer should receive hard copies of the full terms and conditions and a statement of renewal terms if the contract is fixed length
- Customers will be contacted a minimum of 30 days before the end of the contract period with an explanation of the options available and including advice on what a customer should do to terminate their current contract and stop the supplier from assuming contract renewal for a further fixed term contract period.
- Customers at any point from when the contract is agreed until the end of the notice period can give notice that they wish to terminate it at the end of the fixed term period.
These rules come into force on 18th January 2010, however they will not apply retrospectively and so will only affect existing customers when they come to terminate or renew their supply contracts.
In summary, we would have liked to have seen OFGEM implement their original recommendation of stopping contract roll over’s and thus affording the business consumer the same protection as a domestic customer but this is a good first step forward as the new rules provide a consistent approach for all suppliers to adhere to and for all customers to understand.
At the Energy Advice Line we are also pleased to confirm that we meet the recommendations by OFGEM for price comparison services and brokers to provide a code of practice that provides information on its supplier panel, what our remit is and how we are paid.
The Energy Advice Line Key Facts information can be found at http://www.energyadviceline.org.uk/key_facts.php
For further information this pdf download provides a useful guide for small business. http://blog.energyadviceline.org.uk/wp-content/uploads/2010/01/OFGEM-Mico-Business-Changes-Newsletter-WEF20100118.pdf