Energy regulator Ofgem is consulting on major reforms to make the energy market fairer for small business customers.
Ofgem is proposing to widen the number of small businesses that benefit from its existing safeguards to ensure contract terms are clear.
The rules which protect small businesses say that:
- Before entering a contract a supplier must explain key terms and conditions to the business, making it clear the contract is binding.
- Within 10 days of a contract being agreed, the business should receive written copies in plain and intelligible language.
- The supplier will contact the business with details of its new fixed-term offer at least 60 days before the end of the contract. Once the business receives this letter it has at least 30 days to contact the supplier to let it know if it wants to sign up to the supplier’s new offer, or if it prefers to switch to a new supplier once the deal ends.
The rules currently help those businesses consuming less than 200,000 kWh of gas or 55,000 kWh of electricity a year or have fewer than 10 employees and an annual turnover or annual balance sheet total of €2m or less, but under the suggested reform, those protections would be extended to businesses consuming less than 293,000 kWh of gas or 100,000 kWh of electricity a year.
Ofgem believes the extension will lead to an extra 150,000 businesses being covered, protecting customers that typically spend up to £10,000 a year on each fuel.
All bills and statements will also be required to make it clearer when their energy contracts end, so fewer businesses get caught out by being automatically rolled onto a new contract.
Andrew Wright, senior partner of markets at Ofgem, said: "Our retail market review showed small businesses want fairer treatment from suppliers, clearer information about contracts, and more protection from mis-selling.
"Our proposed reforms seek to address these issues. We urge suppliers to show they are committed to restoring the confidence of business consumers by getting behind our proposals."
Another area to be tackled by the reform is switching; businesses have reported that switching suppliers can sometimes be time consuming, especially if they have been barred from switching by suppliers without a clear reason.
Ofgem is closely monitoring the actions of all suppliers in this area and the regulator is already investigating British Gas Business over allegations that it incorrectly objected to some businesses switching.
Energy brokers are to be targeted too; the regulator said it was planning to clean up the practices of some energy brokers by developing an industry-wide code of practice for them, as well as trying to convince the government to grant Ofgem powers to take enforcement action against brokers who mislead business customers.
James Constant, chair of the EnergyForecaster.co.uk, welcomed the reform proposals, but said he was concerned the changes may get diluted as it goes through the consultation process.
"Putting contract end dates and termination windows on bills seems like a very good move for preventing rollover, as it will give businesses all the info they need to understand when to start looking around for a new deal," he said.
"However, you could argue that perhaps it doesn’t go quite far enough - our research found that 55% of businesses would support a total ban on rollover.
"(And while) we are certainly in favour of a single code of practice for energy brokers and the like to set high standards and protect businesses, as we’ve previously argued, we think this should apply to energy suppliers too."
John Walker, national chairman of the Federation of Small Businesses, also expressed disappointment that the practice of auto-rollover which contracts hadn't been abolished.
He had also hoped to see more "concrete" action on making it easier for small firms to switch suppliers, adding: "We would like to see small firms better able to compare one energy supplier’s prices to another.
"However, careful thought needs to be given to how this could be done without it simply leading to price fixing among the big six energy suppliers.”