From a small business perspective, sourcing business energy usually comes down to two deciding factors — a low price and a quality service. But some changes are taking place in the energy market which could influence how small businesses choose their energy contracts.
To help small businesses get to grips with the proposed regulatory changes to the energy market, here we provide a brief overview of why the new measures are being implemented, and list the changes likely to have a direct effect on how small businesses manage their energy.
In June 2014, the Competition and Markets Authority (CMA), which is responsible for promoting competition for the benefit of consumers, conducted an investigation into energy market regulation.
Following a two-year inquiry, the organisation released its findings in June 2016, publishing a final report outlining its recommendations. Included in the report are over 30 changes to the way that the energy market is currently regulated, some of which could impact small businesses.
In essence, the measures introduced by the report focus on four main areas: creating a framework for competition through settlement, industry governance, increased customer engagement and remedies targeting the wholesale market. It seems the CMA’s intention in targeting these four key areas was to produce a wide range of reforms that modernise and update the market in all areas, and all for the benefit of the end customer.
In its report, the CMA outlines over 30 new measures aimed at rejuvenating the competition of the energy market. However, only a handful of these changes will affect small businesses.
Here, we list some of the CMA changes which should be on the radar of your small business.
In a bid to combat the number of micro and small businesses subject to a default contract, the energy regulator Ofgem will be charged with creating and operating a cloud-based database monitoring which businesses have been on a rollover, out of contract or deemed contract with the same supplier for over three years.
Default contracts such as these are perceived as being less competitive than standard energy contracts, given that they’re normally charged at a higher rate than the next best tariff. The report found that, in 2013, 45% of micro businesses were on a default electricity contract, meaning they hadn’t actively negotiated the rate.
Under the new CMA guidelines, all businesses which have been on a default contract for over three years will be included in the Ofgem database. This information will be available to all energy suppliers, giving rivals the opportunity to market their tariffs and pricing to eligible customers via post.
In the new year, all energy customers will be contacted by their supplier, giving notice of their inclusion into the Ofgem database. Customers are able to opt out of this, but that will also mean they won’t be contacted directly by other suppliers offering competitive tarrifs.
In an effort to add transparency to energy pricing, and make it easier for customers to compare deals, all energy suppliers will soon have to provide online quotes for their smaller micro business energy tariffs under the latest CMA regulation changes. Suppliers must provide either a comparison tool on their own site, or quotes sourced from a reputable price comparison service.
One of the most significant measures introduced by the CMA is the ability for micro business customers to terminate a rollover contract with 30 days’ notice. The CMA hopes that by putting an end to fixed 12 month auto-rollover contracts, energy customers will be more likely to shop around for a better and more competitive deal.
While rollover contracts aren’t facing the axe completely, the CMA’s new 30 days’ notice measure will make it easier for customers to switch to a potentially cheaper energy rate.
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The CMA is in the final stages of preparing to rollout its new energy regulation measures, and while many of the changes shouldn’t directly impact on small businesses, we believe it’s important for businesses big and small to stay abreast of the legislative state of the energy market.
To keep up to date with the latest regulatory changes to emerge in the energy market, check back with the Gazprom Energy blog soon for relevant industry news and insight. Alternatively, if you’d like to find out more about our range of business energy services, visit the homepage or call 0845 873 2291.
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