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November 02, 2012

SMEs to get a fairer deal from energy suppliers

Energy regulator Ofgem is consulting on major reforms to make the energy market fairer for small business customers. A recent review concluded that more protection was needed for smaller businesses.

Ofgem is proposing to widen the number of small businesses that benefit from its existing safeguards. These rules currently apply to Britain's smallest businesses – which typically employ 10 people or less. Extending the rules will ensure that 150,000 more businesses are covered.

Ofgem is also proposing that all bills and statements sent to small businesses clearly show when the contract ends, so that fewer businesses end up paying more for their energy than they need to.

The current rules 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 ten days of a contract being agreed, the business should receive written copies in plain 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.

But businesses have told Ofgem that switching suppliers can be difficult and time-consuming. An Ofgem licence condition prevents suppliers from blocking a switch unless there are legitimate reasons. Ofgem has announced that it is monitoring suppliers and their business switching procedures.

Ofgem is also planning to clean up the practices of some energy brokers by developing an industry-wide code of practice for them. It aims to start introducing these reforms from summer 2013.

Andrew Wright, senior partner, markets at Ofgem said: "Our retail market review showed that 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."

Jonathan Elliott, CEO of price comparison service, said: "Ofgem's backing of contract end dates and notice periods on bills is a big win for small businesses. It means far fewer will fall for the controversial 'rollover trap', in which businesses are unknowingly locked into paying high rates for at least a year. In a survey of 1,250 businesses we conducted earlier this year, 96% told us it would be easier to manage their energy accounts if contract end dates appeared on their bills."