Ofgem is “concerned” that some micro businesses are struggling to engage with the market and are paying more for their energy than they should.
This has prompted the regulator to launch a strategic review of the £3.5 billion micro business energy market.
A micro business is defined as a business which consumes no more than 293,000kWh of gas or 100,000kWh of electricity each year or has fewer than ten employees and an annual turnover not exceeding €2 million.
Market information for micro businesses is “often inaccessible” and results in customers paying high prices and struggling to make informed decisions, according to Ofgem’s initial analysis.
The regulator says it has found that micro businesses who do not engage in the market still pay a higher “loyalty penalty” than disengaged domestic consumers.
In 2016 the Competition and Markets Authority (CMA) ordered suppliers to provide clear pricing to micro business customers through a quotation tool on their websites or through price comparison websites, to help micro businesses engage in the market.
Ofgem implemented this the following year and has today (3 May) published an evaluation of its effectiveness.
It suggests that while there has been an improvement in the level of price information available, it has had a limited impact on engagement levels and has failed to address some of the fundamental problems in the market.
The regulator will now gather further evidence before publishing its action plan this coming winter.
Responses are due by 21 June.
Anthony Pygram, director of conduct and enforcement at Ofgem, said: “Micro businesses are the backbone of the country’s economy.
“Yet too many are still finding it hard to navigate what is a complex and at times opaque market to get a better energy deal and are suffering significant consumer detriment as a result.
“Our review announced today, combined with our continued work with the government and industry, aims to deliver a properly functioning competitive retail energy market which works for all micro businesses.”
A spokesperson for the Competition and Markets Authority said: “We’re pleased to see that Ofgem’s report has highlighted that our positive intervention has led to better price information for micro businesses.
“We note Ofgem’s findings about engagement levels for micro businesses and the wider issues in the market and we will liaise with Ofgem during the review as they consider the next steps to improve this area.”
Gillian Guy, chief executive of Citizens Advice, said: “This review is much needed, but long overdue. Micro businesses face a number of challenges engaging with the energy market and often end up paying well over the odds.
“Comparing prices can be difficult. The problem is made worse by the sharp practice of some brokers who mislead customers or engage in outright fraud.
“The lack of protections or redress for those who’ve been misled leaves micro businesses out of pocket, undermines trust and reduces future engagement in the market.
“Ofgem’s review must lead to fundamental changes in the way that micro businesses are protected.”
Matthew Vickers, chief executive at the Energy Ombudsman, welcomed the announcement.
He said: “We think it’s right that micro businesses have the same opportunities, rights and protections in the energy market as domestic customers.
“A micro business with an unresolved energy complaint can escalate the issue to us and we’ll investigate.
“If we uphold the complaint we’ll require the energy supplier to take action to put things right.”
Writing recently for Utility Week Iain Walker, director of business energy sales at Eon, welcomed Ofgem’s review but expressed concern at how long it may take for “substantive action”.
He said: “The chance for Ofgem to review the matter, and for the players in this market to look at what we can do better, is something I welcome.
“But the indications are the review could last for several years, and there may not be any substantive action that results from it until March 2021.
“Not only is that two years away, but it marks ten years since we first announced our intention to develop our own TPI Code of Practice (also adopted internally by our own sales teams) to seek to improve relationships with customers and provide a fairer, more transparent service.”