Gas and electricity bill revamp plan for small firms

Ofgem's Ian Marlee: "Small businesses find it difficult to deal with energy companies"

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More small businesses will receive clearer information that allows them to shop around for energy under plans from the regulator.

Ofgem, which is investigating British Gas Business for blocking switching, will extend rules that make the date contracts finish clear on paperwork.

Businesses with fewer than 10 employees currently benefit from the regulations.

The regulator wants to expand this to firms which spend up to £10,000 a year on gas and the same on electricity.

"Small businesses want fairer treatment from suppliers, clearer information about contracts, and more protection from mis-selling. Our reforms seek to address these issues," said Andrew Wright, of Ofgem.

Market share

The proposals, published on Friday, come shortly after the regulator unveiled plans to force suppliers to tell domestic customers about the cheapest gas and electricity tariffs they have on offer.

These included plans to ban complex multi-tier tariffs, new personalised information to help consumers find their best deal, and ensuring customers defaulted to the cheapest option at the end of fixed-term contract.

The big six energy companies control 78% of the market for electricity supply to businesses, although this falls to just 20% in the gas sector.

Ofgem's plans for small businesses should make details of fixed-term deals clearer. The proposals are estimated by the regulator to improve protection for more than 150,000 firms.

The new rules, which will go through consultation, are planned to be in place for summer 2013.

Shopping around

Ofgem believes that small businesses deal with their energy needs and bills in much the same way as a domestic customer. Unlike bigger companies, they do not have a specialist member of staff who shops around and negotiates with suppliers on their gas and electricity requirements.

Generic electricity pylon The big six energy companies have control of nearly four-fifths of electricity supply to business

So, Ofgem wants to make the switching process clearer for small businesses that spend up to £10,000 a year on each fuel. Under the plans, suppliers would have to make it clear on bills and statements when a contract is due to end, to allow firms to start looking around for their next deal.

This will bring the rules in line with current regulations covering business customers that employ fewer than 10 employees, and spend up to £5,000 a year on each fuel.

The regulations include:

  • Suppliers sending details of a new fixed-term offer at least 60 days before the end of a contract
  • A 30-day window for a small business to sign up to a deal if it wants, or inform of plans to switch supplier
  • A firm that fails to respond may only be put on a new rollover contract that lasts for a maximum of a year

Suppliers must treat customers fairly when drawing up contracts, bills and arrangements for switching or face fines.

John Walker, chairman of the Federation of Small Businesses, said: "We support moves to make small business customers more aware of when their contract ends.

"However, we want to see the practice of rollovers, which can lock small businesses into uncompetitive contracts, abolished once and for all when Ofgem has completed its ongoing work in this area."

Angela Knight, chief executive of Energy UK, which represents the major suppliers, said: "We acknowledge there is still work to do, but we're pleased that Ofgem has recognised the differences in the domestic and non-domestic energy markets.

"We will continue to work with the regulator, government, and consumer groups on these proposed reforms. With difficult challenges ahead - ensuring we keep the lights on in Britain, while generating cleaner energy and keeping bills as low as possible - providing businesses with confidence in our energy market is more important than ever."

Inquiry

At present, energy companies can object to a small firm switching energy supplier, but only if there are good reasons. Such reasons include the firm owing money.

British Gas Business has been under investigation by Ofgem for claims that it incorrectly objected to businesses switching.

A British Gas spokeswoman said: "We are working closely with Ofgem and hope to get the situation resolved as soon as possible."

The regulator also wants a clear code of practice for brokers, some of whom mislead business customers.

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