Ofgem reaches conclusion for the Microbusiness Strategic Review

The Microbusiness Strategic Review came to a close on 28 March 2022, with four finalised proposals from Ofgem that aim to protect microbusiness consumers and create a more robust framework through which the market can operate. Following the unprecedented rise in wholesale prices and recent geopolitical events, these changes are more important than ever.

The first change will strengthen the current requirements on the provision of principal contractual terms to ensure that they are clearly brought to the customer’s attention both pre- and post-contract entrance. Ofgem has also decided that suppliers should ensure that customers are provided with information around brokerage costs in the principal terms, to provide transparency around additional costs and enable microbusinesses to make suitable purchasing decisions. This should include “benefits of any kind”, and although Ofgem recognises that accounting for such benefits may be complex, it said that suppliers should apply a principle of providing maximum transparency to ensure customers are fully informed when making purchasing decisions.

The second change will prohibit the requirement for termination notices for microbusiness contracts to enable a smoother switching process. An exemption will be provided for Evergreen contracts, which Ofgem said would allow suppliers to provide non-fixed term contracts at a lower cost to consumers than deemed or out-of-contract rates.

The third change will require suppliers to only work with brokers signed up to qualifying alternative dispute resolution (ADR) scheme. This will mean any broker disputes may be resolved through an independent body and fill a gap in protection for microbusinesses. Ombudsman Services will be acting as the ADR provider, with the registration window open from 26 April ahead of the scheme going live on 1 December. Any broker not signed up to the scheme will see their ability to work with suppliers greatly diminished, and this is an important step in ensuring that all microbusinesses have access to such a service for broker disputes. The Ombudsman will be running two sessions on the scheme to provide more detail on the new arrangements.

The final change involves Ofgem working in collaboration with Citizen’s Advice to improve the delivery of key information, such as consumer rights and company obligations, to help guide microbusinesses through the current market. The publication of such information alongside the other reforms should help microbusinesses with understanding their rights and allow suppliers to signpost customers to a central source of advice.

One point of contention has been the ‘cooling off’ period, a proposal that was rejected from the final package of measures. The implementation of this ‘cooling off’ period had initially been planned to work alongside the Switching Programme, however, due to a delay in the timeline which created an overlap, the regulator states it may be more appropriate to revisit this proposal after the Switching Programme has gone live.

The changes to licence conditions will be implemented on 1 October 2022, except for the conditions regarding the broker alternative dispute resolution scheme, which will take effect from 1 December 2022. While these will bring a largely positive impact, further details are sought after, particularly around the design and implementation of the ADR scheme. More broadly, the government is still considering whether to extend the regulatory framework to third-party intermediaries, and close attention will be paid to the outcomes of the supplier-led approach that Ofgem is taking forward.

Cornwall Insight offers an energy supplier compliance portal service that covers important regulatory updates and provides a comprehensive breakdown of the supply licencing conditions. For more information or to register your interest, please contact regulation@cornwall-insight.com

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