Ofgem Neglect of Business Energy Customers Escalates

Ofgem’s neglect of business energy customers escalates yet again

In late July Ofgem announced the final stage of its ‘Statutory consultation on non-domestic automatic rollovers and contract renewals’

Despite this announcement receiving little fanfare and far less media scrutiny compared to the Competition and Markets Authority investigation into the energy sector, the consultation should have had an equally significant impact on the future size, shape and behaviour of the market.

Ofgem’s final proposals were to focus upon rollover contracts and renewal management of the energy suppliers.

For some years now Business Juice, or more specifically our CEO James Constant, has been lobbying Ofgem, MPs and the government to outlaw the activity of rollover contracts and to improve the standard of renewal management in the industry.

What are ‘Rollovers’?

Suppliers for a number of years have operated a policy of opaque renewal terms and confusing termination obligations enabling them to expose significant elements of their customer portfolio to automatic contract extensions on premium price terms and for a fixed period of at least 12 months. In 2010 Ofgem moved to ‘protect’ micro businesses by limiting the period of the rollover to 12 months, they however failed to put in place any level of safeguard around the price a customer could be charged over that period.

Indeed this for many years has been tacitly approved by Ofgem and deemed acceptable within the industry.

However amongst business energy customers, with horror stories of 300% premiums being paid by some customers simply for not being able to decipher their renewal obligations, the policy of rollover has been seen as one of the worst examples of supplier excess and ineffectual regulation.

After often being a lone voice with little support in the market, in Summer 2013, Business Juice’s campaign to outlaw Rollover started to gain traction. After our early success with constituency MPs, working to highlight to businesses in their areas to not be caught out by these terms, No. 10 Downing Street became aware of the issues.

As a result No.10 established the SME Energy Working Group with the express intention of limiting the worst excesses of negative behaviour in the business energy market. Rollover contracts were the first in the spotlight.

James, as a founder member of the Working Group, played a pivotal role in beginning to dismantle this much maligned rollover policy. But much credit should go to the Big 6 energy suppliers.

They, over the summer of 2013 all agreed that by the end of 2014 they would either end the operation and sale of rollover contracts (British Gas Business, SSE, Scottish Power, E.ON and nPower) or would change their terms to enable customers to exit such contracts at will (EDF Energy).

However conspicuous from this collective agreement was the active support of Ofgem as well as a commitment from smaller suppliers to abandon this deeply mistrusted model of operating.

Ofgem’s failure to endorse or act wasn’t a surprise, although it was reasonable to assume that it should have been.

In contrast the reticence of smaller suppliers was understandable given their commercial constraints, whilst not necessarily justifiable.

Fast forward to Summer 2014 and Ofgem, a full year after the Big 6 energy suppliers’ move, have finally reached a point of consultation on extending this policy across the market.

All parties fully expected Ofgem to pick up the mantle of the SME Working Group and outlaw the practice of rollover contracts once and for all and to modify the standard licence conditions 1 and 7A of the Suppliers’ electricity and gas supply licences to facilitate this much needed reform.

Ofgem however have utterly failed to do this in one of the most shameful indictments of their wretched history when it comes to protecting business energy customers.

Instead Ofgem’s have suggested rules that would require suppliers to:

• Include the customer’s estimated annual consumption on their renewal letter
• Include the customer’s current prices on their renewal letter
• Include the customer’s automatic renewal prices on the renewal letter
• Require customers to have to give no more than 30 days’ notice if they want to leave at the end of a contract
• Acknowledge receipt of a termination notice within five working days.

We’re confident that most casual observers of a market would see these stipulations as merely what is expected in the normal course of events and not something that the regulator would need to outline or that the regulator would feel would show them at their customer empowering best.

However this is the crux of the issues and a damning indictment on Ofgem’s utter incapability to act on improving the energy market. Ofgem are simply dysfunctional when it comes to making clear, coherent, commercially sound decisions for the business energy market.

After their now infamous failure to tackle any of the fundamental issues of the market since their inception, and the widespread criticism they have received, Ofgem have singularly failed to build on the work of No 10 and the Big 6 Energy suppliers and have once again utterly failed business energy customers in their pronouncement that:

“We are not proposing to ban automatic renewals at this stage”

If this comment wasn’t shocking enough their preposterous justification simply makes their judgement and understanding of the business energy market even more questionable:

“Doing so [banning rollover contracts] carries some risks to consumers and we are considering whether it would be proportionate and in consumer’s interests.”

This is clearly a perverse set of thinking from a deeply dysfunctional regulator.

One would expect that if the much maligned Big 6 (triumphantly by Ofgem) have realised the folly in continuing to operate and enforce rollover contracts it should be a given that the regulator would have the wherewithal to realise the same.

Alas no.

As if to underline their apparent confused state of mind, Ofgem went on to say:

“However, we have serious concerns about the difference in prices charged by a very small number of suppliers when they renew contracts automatically.

“This practice may be unfairly penalising customers who do not actively engage with their supplier at contract renewal.”

Where the idea of “a very small number of suppliers” comes from is anyone’s guess, certainly not from the world of reality.

However in the latest laughable failure of Ofgem to do anything and instead to continue their policy of waiting for others to act, Ofgem said:

“Over the next six months we will monitor whether this situation changes: if not, then we will reconsider the case for a ban on automatic renewals.”

It’s easy to take cheap shots at Ofgem, their mistakes being so common, but the regularity with which they fail their supposed customer base is an appalling indictment on their tenure, far more concerning however is the impact that their latest case of failing to act will have on the average business energy customer.

We asked our CEO, James Constant, what he thought of Ofgem’s announcement. The reaction was severe. James said:

“Ofgem, not for the first time you should hang your heads in shame. Your shambolic failure to build on the commitments of the Big 6 energy suppliers to end unfair automatic rollover contracts is a shameful footnote in your history.

“As part of the CMA investigation no stone must be left unturned, that includes a key focus of whether we have the fit for purpose regulator that customers need in the energy market. It is patently clear to us at Business Juice that yet again Ofgem have proven themselves utterly incapable of recognising and acting in the customer interest.

“It is time for the folly of Ofgem to end. CMA, over to you, anything must be better than this.”