- Enforceable Standards of Conduct mean suppliers must treat small businesses fairly to help improve confidence in the market
- 160,000 more businesses to benefit from existing rules giving them clear information on contracts
Ofgem’s new Standards of Conduct requiring energy suppliers to treat small businesses fairly have come into force this week.
The Standards of Conduct are part of Ofgem’s reforms to provide businesses with more protection in the energy market, giving them the confidence to shop around and find the best deal.
The Standards of Conduct require suppliers to treat firms fairly when they are billing, contracting with, and switching business customers. They are backed by Ofgem’s powers to levy fines if necessary*.
The Standards of Conduct apply to business customers who typically spend up to £10,000** a year on each fuel. Ofgem has also extended existing safeguards so that from 31 March 2014 up to 160,000 more small businesses can get clear information on the key facts about their contracts. They will also benefit from the limit on the automatic rollover of contracts to one year. Previously these protections only applied to businesses spending up to £5,000 a year per fuel.
Andrew Wright, Ofgem Chief Executive, said: “Small businesses make a major contribution to the British economy and it’s very important that they have confidence in the energy market. Two thirds of all the concerns businesses have about the market relate to billing, contracting and switching supplier, which is why our Standards of Conduct target these three areas.
“Our other reforms arm businesses with the key facts about their contracts and when they are coming to an end. This will make it far easier for them to compare the market. The onus is now on suppliers to make sure they stick to these standards and get their customer service right.”
The Standards of Conduct mean suppliers must act quickly to make amends when they have made a mistake, for example wrongly preventing a business from switching. They will also have to treat businesses fairly on back-billing and make sure that businesses are fully aware of contract terms and conditions.
Ofgem allows suppliers to have a notice period of up to 90 days before the end of a fixed-term contract, so that businesses can decide whether they want to negotiate a new deal or not. However, to give businesses more time to compare deals, suppliers must now accept a termination notice from a business at any time before this. This change will come into effect at the end of March 2014.
From March 2014 suppliers will also be required to put the contract end date on all bills for businesses which typically spend up to £10,000** per fuel, per year. This will ensure these businesses know exactly when they should start comparing other offers in the market so that if they want to switch they could be ready to do so when their contract ends. In addition Ofgem is reviewing whether automatic rollover of contracts for small and medium sized businesses should be banned altogether. Ofgem expects to consult on its preferred option before the end of this year and reach a conclusion by the end of winter 2013/2014.
Ofgem has made clear that it will address the problem of rogue brokers that are mis-selling energy to businesses. We have already made the case to Government for more powers in this area. We are also working with brokers and suppliers to set up an industry-wide code of practice for brokers. This code will set out that brokers have to behave in a fair and transparent way to give businesses confidence when using their services.
Notes to Editors
1. The standards of conduct came into force on Monday, 26 August 2013
2. Ofgem’s proposed reforms for businesses result from its review of competition in the retail market for gas and electricity. This showed that many businesses miss out on chances to shop around for better deals because:
- They aren’t clear about the terms and conditions of their contract, such as when they can let their supplier know that they want to switch at the end of fixed term contracts.
- They face problems and/or delays when transferring to a new supplier as a result of the above, or from poor supplier behaviour.
- Poor behaviour from some brokers, which could result in, for example, a business paying more after switching.
3. What do the rules around clearer contracts say?
There are rules currently in place meaning that suppliers have to provide Britain’s smallest businesses with clear information about their contracts. The rules apply to contracts for Britain’s micro-businesses which consume no more than 55,000 kWh of electricity, 200,000 kWh of gas a year of gas per year, or employ less than 10 employees and have an annual turnover or annual balance sheet total not exceeding €2 million. Companies up to this size typically spend around £5,000 per fuel on energy. More information on the rules can be found in our energy contracts for business consumers factsheet.
Ofgem’s changes mean that these rules are extended to include businesses that have an annual consumption of not more than 100,000 kWh for electricity and an annual consumption of gas not more than 293,000 kWh. This equates to a spend on each fuel of roughly £10,000 per year.
Currently some customers are only allowed to give notice to terminate their contract at a specific time (for example in a certain month). But we are now requiring that from 31 March 2014 smaller businesses will only have a latest date by which they must give their termination notice.
4. Ofgem’s review of roll-over contracts for business customers
Ofgem’s reforms will give businesses much more clarity on their contract terms and far longer timescales for telling their supplier if they want to leave at the end of the contract. However businesses have been concerned about suppliers’ use of automatic rollover contracts. This is why Ofgem is reviewing whether or not they should be banned. Some of the large suppliers have announced they will no longer use automatic-rollovers and we will consider these developments as part of our review.
Before deciding on whether or not to ban automatic rollovers, Ofgem is duty bound to review the impact this would have. Ofgem’s decision cannot be made without looking at the nature of contracts businesses will find themselves on if they are not automatically rolled forward onto new deals. Therefore Ofgem will examine the price businesses will pay for energy if they default onto deemed or out of contract rates at the end of fixed term deals contracts. These rates can be higher than what they would pay under a contract. However customers would have the freedom to switch supplier more easily than if they had been rolled over. Ofgem’s review will be carried out in consultation with all relevant stakeholders before a final decision is made.
Back-billing happens when suppliers do not bill a customer for some time but then issue a bill for energy that has been consumed but not previously billed. Ofgem told suppliers to work on this issue with consumer groups. Ofgem has made it clear that it wants to see all suppliers cutting back-billing to just one year, where the supplier is at fault. A number of suppliers have taken steps forward in this area. More information on supplier back billing can be found on the consumer futures website.
6. Ofgem is the Office of the Gas and Electricity Markets, which supports the Gas and Electricity Markets Authority, the regulator of the gas and electricity industries in Great Britain. The Authority's functions are set out mainly in the Gas Act 1986, the Electricity Act 1989, the Competition Act 1998 and the Utilities Act 2000. In this note, the functions of the Authority under all the relevant Acts are, for simplicity, described as the functions of Ofgem.
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