Dispute resolution for microbusinesses introduced

Ofgem has introduced new dispute resolution arrangements for the microbusiness retail market following a three-year review.

A microbusiness 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 (c£1.53 million).

The latest government data suggests there are 5.3 million microbusinesses in the UK, accounting for 95% of all businesses, 21% of employment and 14% of turnover.

Ofgem’s review, which began in 2019, explored whether microbusinesses were being abused by unregulated energy brokers, as well as suppliers, something they have been accused of doing in the past.

In its decision document, the regulator outlined a series of measures to improve the experience of microbusinesses in the market.

From 1 December this year energy suppliers will be required to only work with brokers signed up to a qualifying alternative dispute resolution (ADR) scheme which will be provided by Ombudsman Services and rolled out in four phases.

From 26 April to 31 August brokers will be able to register with Ombudsman Services for an annual subscription of £300 per year. Confirmation of acceptance to the scheme and invoicing will begin in October, brokers will be added to the scheme register in November before December’s go-live date.

“Implementing this requirement will fill a clear protection gap and enable consumers to resolve disputes via an independent body. We believe it will also help drive improved practice within the broker community,” Ofgem said.

Elsewhere the regulator is strengthening supply licence conditions around the provision of principal contractual terms to ensure consumers receive key information both pre and post contract entrance.

“This will ensure that key information about a new contract, including any brokerage costs, is always brought to the attention of the consumer, which we believe is an essential part of a robust contracting process,” said Ofgem.

Ofgem is working with Citizens Advice to update and create key information about the market as well as consumer rights and company obligations which will be hosted on the charity’s website.

The pair are developing a “high-level consumer-focussed guide” to provide headline information about key features of the market and sources for more comprehensive information and advice offered by other parties.

Elsewhere the regulator said it is proceeding with plans to prohibit suppliers from requiring microbusinesses to provide notice of their intent to switch, except for evergreen contracts.

Ofgem said exempting evergreen contracts will typically allow suppliers to provide non-fixed term contract options at a lower cost to consumers than deemed or out-of-contract rates.

“Suppliers should be able to minimise any confusion that might arise on consumers’ part by clearly setting out any termination notice requirements within their contractual terms,” the regulator added.

Meanwhile Ofgem said it was dropping plans to introduce a cooling-off period for the time being but will revisit the plans once the Switching Programme has gone live later this year.

“Reviewing available policy options at this juncture will allow for a broader range of design options to be considered and for the optimum consumer outcomes to be realised,” it explained.

Alex Belsham-Harris, Citizens Advice’s principal policy manager, energy retail markets, said: “Ofgem had proposed that it would give microbusinesses more rights to cancel a contract if they changed their mind.

“We support this idea, but were concerned by the design they put forward, as the rights would only have applied in limited circumstances, and left many without protection.

“We think microbusinesses should have access to a full 14 day cooling off period for all switches, like domestic customers.”

Belsham-Harris added that the charity will “continue to argue for a plan to deliver this important protection in full”.

He continued: “Suppliers are obligated to treat microbusiness customers fairly, and as part of its review we called for Ofgem to be clearer on how it expected suppliers to interpret this for customers in debt.

“We also wanted clearer signposting on bills to third party support, so businesses could more easily find advice.

“We’re disappointed these proposals were not taken forward, but will work with Ofgem later this year to raise awareness of the consumer protections that are available.”