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Forum of Private Business responds to Ofgem shake-up of small business energy market

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Proposals to better protect small businesses from energy companies could be undermined because of the lack of a dedicated watchdog, the Forum of Private Business has warned.

Following its research showing 94% of small businesses surveyed have seen energy bills rise over the past year – the biggest cost increases they have experienced – the Forum is welcoming Ofgem’s proposals to reform the energy market.

However, the watchdog Consumer Focus is being disbanded in 2013 and some of its powers will be passed to the Citizens’ Advice Bureau (CAB). It follows the demise of its predecessor Energywatch in 2008 and the removal its dedicated small business complaints hotline. The Forum is concerned that, unless new Ofgem powers prove adequate, the CAB could prove even less effective at policing any reforms.

“We can only hope that, if established, Ofgem’s proposed accreditation scheme for codes of practice would work effectively, and financial penalties would be a big enough deterrent – but there is a risk that the small business energy market will not be adequately policed,” said the Forum’s senior policy adviser Alex Jackman.

“Ofgem clearly recognises our members’ concerns – that the behaviour of energy companies towards their small business customers is all too often unfair and unjust, so these proposed reforms are certainly welcome, particularly addressing misselling and extending the protections against rollover contracts enjoyed by micro businesses to all SMEs.

“But we are concerned that the imminent demise of Consumer Focus, following the closure of its predecessor Energywatch, could leave small firms without a dedicated watchdog.”

Many business owners have been hit by misselling at the hands of energy brokers and are reporting contractual issues, including the practice of ‘rolling’ expiring contracts over to often more expensive deals with little or no prior warning, blocking them from switching suppliers to secure better deals.

Ofgem’s proposals focus on placing new standards of conduct into suppliers’ licences with financial penalties for breaches and, to better protect businesses from unfair sales practices, introducing an official accreditation scheme for codes of practice governing energy brokers and secure powers to take enforcement action directly against brokers for misleading marketing.

The energy regulator is reviewing whether suppliers are complaint with license conditions designed to ensure suppliers cannot unjustly prevent businesses from switching to another provider, following a survey in March which found considerable evidence of this.

Importantly, Ofgem, which is expected to publish a consultation on its proposals this week, is also seeking to extend existing licence conditions protecting micro businesses – including requiring suppliers to provide clear and transparent contract terms and conditions up front and regulate how contracts can be rolled over – to larger SMEs.

The Forum’s recent quarterly ‘Referendum’ survey showed rising energy prices are the biggest cost increases seen by firms over the past 12 months, followed by transport (92%) and the price of raw materials (82%).

Further, 82% of respondents said that overall rising costs have impacted adversely on their business, with 74% reporting that they have inhibited their growth

In December 2010, the Forum surveyed its members about the cost of utilities and the behaviour of suppliers.

A total of 42% of businesses surveyed reported being caught out by ‘roll-over’ contracts, mainly from energy companies but also water contracts.

In all, 35% of respondents were unsure when their contracts end and 31% relied to some extent on the arrival of a renewal letter in order to begin the process of comparing their current providers with the rest of the market.

Micro businesses benefitting from Ofgem’s new licensing condition ‘7A’, which the regulator is seeking to expand to cover larger SMEs, were less dissatisfied with utilities providers than other small businesses.

At 65%, fewer micro businesses reported difficulties in keeping track of contract dates compared to other small businesses, for which the figure was 76%.

The FPB’s utilities adviser Colin Beake, of Utility Options, explained: “Big businesses can afford to employ purchasing managers whose job is to ensure they get the best prices on utilities, but most small firms do not have that luxury.

“Business owners are busy doing what they do best – running their businesses. Often, this means contracts are more easily rolled over, leaving them with costly bills.

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