Procurement 6 December 2016

What small business owners need to know about new energy market regulation

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Under new rules, energy suppliers will soon have to provide online quotes for small and micro business customers

Proposed changes to energy market regulation is something small UK business owners should be aware of, writes regulation and compliance manager at Gazprom Energy, Steve Mulinganie.

For many small business owners, the energy they buy and consume and who supplies it may be low on their list of priorities. But the ways suppliers can market to businesses, and the information that’s available to them about competitors’ customers, is changing.

Back in June 2014, the Competition and Markets Authority (CMA) conducted an investigation into energy market regulation following a referral from Ofgem, which was triggered by the energy industry receiving increased political and media attention over the way it was perceived to operate.

In June 2016, the CMA’s final report outlined a number of recommendations and over 30 new measures to energy market regulation are now being brought in, some of which do impact small businesses.

With the intention of setting out a wide range of reforms that will modernise the market for the benefit of the customer, the report looks at four core areas of interest – increasing customer engagement, creating a framework for effective competition through settlement, industry governance and wholesale market remedies.

Perhaps one of the most significant remedies that businesses should be aware of is the creation of an Ofgem database made up of “disengaged micro business customers”.

Ofgem will be responsible for creating and operating this secure cloud-based database, which will hold information on all small businesses that have been on a default contract, a rollover contract, out of contract or deemed contract with the same energy provider for three or more years.

All rival suppliers will have access to this information and will have the opportunity to market to customers via post. During 2017, your current supplier will be contacting affected customers to inform them of the new database, and give will customers the choice to opt out of having their information shared with Ofgem, and therefore appearing on the database.

Energy suppliers will also soon have to provide online quotes for small and micro business customers, to aid price transparency and comparisons. Suppliers will need to have an online quotation tool or be able to provide quotes via price comparison websites.

This means that small and micro businesses customers will be able get a price by simply entering their postcode and level of consumption.

Another significant change is ability for micro business customers on a rolled over contract to be able to terminate the contract on 30 days’ notice. So while rollover contracts will still be allowed, customers can exit on 30 days’ notice.

According to the final CMA report, in 2013 45 per cent of micro businesses were on default electricity rates, meaning that these customers had been placed on rates without actively negotiating.

By ending fixed 12 period auto-rollover contracts, the CMA aims to gain more engagement from micro business owners and more interest into the potentially better market rates that are on offer.

Some of the remedies will be coming directly from the CMA through an order, whereas others will come through Ofgem amending supplier licence conditions. However, the different implementation routes will not fundamentally affect the delivery.

The CMA is currently in the final stages of finalising the details of the changes, and it is expected that a formal consultation will be undertaken in the next few weeks.

Although energy might not be a key buying decision for many small businesses, these impending changes may be of some interest to customers.

Steve Mulinganie is regulation and compliance manager at Gazprom Energy.

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