Much for Ofgem to consider in its microbusiness market review

Ofgem seems to be gearing up for its much-anticipated review of the microbusiness energy market, having highlighted its intention in its draft 2019-21 Forward Work Programme, published in November 2018. Not before time say some, citing customer confusion and disengagement, over-mighty suppliers and too many dodgy brokers.

The business market has always been opaquer than the domestic market, with suppliers until recently not obligated to publish prices – a considerable information advantage for suppliers over most of their customers – and very specific rules on how customers can negotiate deals and switch suppliers.

In its workplan Ofgem pledged to understand the challenges and consumer experiences at “each stage of the customer journey”, and to identify any case for action by March 2021.

Opacity and complexity do not necessarily mean action should be taken, and there are some important existing initiatives that Ofgem will no doubt wish to follow up on before it takes more action. Notably, we think Ofgem needs to decide whether it should:

  • rejuvenate its 2016 initiative for a code of practice for third party intermediaries (TPI) or develop different interventions to control rogue conduct. This remains a consistent demand from suppliers and TPIs alike and is a notable emerging theme of our 2019 survey of TPI satisfaction with energy suppliers
  • harmonise the way suppliers post microbusiness prices in the online portals. This initiative was triggered by the 2016 Competition and Markets Authority sector report. Our quarterly SME price reports show there are huge differences in the way suppliers are using these portals compared with the offers they make to TPIs, and
  • specify further the way that offers and contracts are presented following its ban on automatic rollovers, harmonisation of contract termination periods and information implemented in the earlier part of this decade.

No doubt the regulator will also seek to glean what it can from market developments. In this respect, our Non-Domestic Supplier Insight Service has highlighted developments including:

  • how a squeeze on supplier margins and TPI commissions in the light of last year’s wholesale price spike is changing the way suppliers and TPIs compete to attract and retain customers
  • several suppliers that are overhauling the ways they engage in the market
  • a slowing of new entry – and some exits – by suppliers, and
  • rapidly developing innovation from suppliers in serving business start-ups and traditional poor credit sectors such as hospitality and care homes.

Further information on Cornwall Insight’s insight services on the non-domestic energy markets is available from Head of Retail and Relationship Development Robert Buckley at r.buckley@cornwall-insight.com

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