Terms and conditions apply: Ofgem looking further into business market

As turbulence has continued in the wholesale energy markets throughout 2022, including through the crucial October contracting round for the business supply market, non-domestic energy suppliers have come under considerable pressure.

Firstly, they have had to attempt to pass through extraordinary price increases to customers in recent months, particularly if businesses had previously fixed for multiple years; if they had fixed pre-2021, business rates now could have increased by about four of five times.

Secondly, the dramatically increased prices and uncertain levels of government support have increased the issue of bad debt for suppliers, something we have written about in a recent insight paper. This bad debt risk needs to be priced into contracts, through more stringent credit terms, increased security deposits or higher deemed rates, exacerbating the issues faced by customers.

Thirdly, through all this, suppliers have had a very short time to implement the Energy Bills Relief Scheme (EBRS), a six-month government support package applying to all businesses, charities and public sector organisations. This complex intervention has been implemented successfully by suppliers very quickly, but no doubt has taken up a significant amount of supplier resource.

As a result of these pressures on suppliers, we have seen anecdotal evidence of tougher payment terms being introduced, as well as price increases across the board, including for those that are unwilling or unable to pay, and higher deemed rates for those unable to secure a contract.

Ofgem has also picked up on this, resulting in an open letter sent to all non-domestic suppliers on 15 November. The regulator noted it was “concerned about repeated reports about potential detriment that business customers are currently experiencing”, raising a variety of issues including:

  • A lack of offers to contract for existing or new customers
  • “Excessive” security deposit requirements
  • “Excessive” risk premia being priced into contracts
  • Customers being unable to easily contact their suppliers
  • “Unacceptable practice during debt and disconnection activities”
  • “Excessive” deemed rates
  • “Concerning” increases in standing charges, raising concerns that the EBRS is facilitating “unreasonable premiums”
  • Concerns around domestic customers who receive energy via a non-domestic contract experiencing similar harms

Ofgem discussed the letter and its requests for further information at our recent Energy Supplier Forum, where a representative discussed the regulator’s expectations. Ofgem recognised the increased risk in the market and the need for suppliers to share this with business consumers but noted that the issue of “excess” charges remained concerning.

With further information being requested from suppliers, particularly around the make-up of deemed charges, the issue looks set to be investigated further in the new year. It is likely that the make-up of deemed contracts will be assessed, alongside the appropriate level of risk premium that should be added to contracts. This is a complex area given the diversity of customers in the business market. Ofgem noted in its letter that it was reviewing options “to introduce additional regulations to protect all non-domestic customers”, which should take into account suppliers’ request for information submissions.  

Ofgem has since published a further open letter on 20 December, setting out good practice processes on debt and disconnection that it would expect suppliers to follow “at minimum” in supporting their customers. Detail is provided on security deposits, transparency on processes and debt and disconnection paths, amongst several other areas, which will no doubt facilitate a detailed discussion at our next Energy Supplier Forum in January.

For more information or to request a free trial on our monthly Energy Supplier Forum for non-domestic or domestic suppliers please contact Magdalena Jennings at m.jennings@corwnall-insight.com.

This advert shows our Business and Supply Service. Contact Magdalena Jennings at m.jennings@cornwall-insight.com for more information.

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