Ofgem launch the strategic review of the micro-business market
On Friday, 3rd May 2019, Ofgem launched the anticipated strategic review of the micro-business retail market that aims to identify measures to improve outcomes for micro-businesses. The call for evidence has set out their initial analysis and theories of harm alongside a micro-business customer journey model.
This review will focus on identifying short and medium-term actions that can be taken within the existing market structure and overarching regulatory framework. Suppliers will be required to provide evidence in response to requests for information from Ofgem throughout the coming months.
Ofgem has set out their expectation for how micro businesses should be treated by suppliers and TPIs and published their ideal customer experience model.
Customer journey model
- Microbusinesses should be aware that they can switch to better deals and access better/different service offerings
- Micro-businesses should be able to browse the market for alternative offerings quickly and easily, with the option of using the online or offline channel that works best for them
- Micro-businesses should experience a smooth, transparent and not overly complex switching and contracting process where they are treated fairly by all providers
- Micro-businesses should benefit from an open dialogue with service providers that are responsive to their needs on a range of issues while they are in-contract, e.g. debt management
- Micro-businesses should be able to exit contracts without facing unnecessary fees, obstacles or complications
Ofgem has stated that the customer journey is currently hampered by theories of harm that spoil the micro-business customer experience of the energy market.
Ofgem’s theories of harm
The smallest micro-businesses cannot effectively engage with the current market given its complexity, including the very wide range of offerings and providers. At present their size and lack of expertise place them at a significant disadvantage when engaging with providers, leading to them ending up on expensive and/or unsuitable deals.
The cost of disengagement is higher for micro-businesses than disengaged domestic consumers leading to disengaged micro-businesses overpaying for their energy.
Barriers to accessing, using and sharing consumption data are preventing some micro businesses fully benefiting from smart data and other technological innovations. This is hampering their ability to make informed switching decisions, use energy more efficiently and budget effectively.
A significant number of micro-businesses are generally unaware of the opportunities presented by the market, their rights, and company obligations. This is leading to a lack of engagement and/or a substandard experience during the customer journey.
Despite the Competition and Markets Authority’s (CMA’s) attempts to improve price transparency, pricing is still not fully transparent and it is difficult to compare prices. This is leading to a significant proportion of micro-businesses not identifying the best deals.
The supplier/TPI contracting process is, or is perceived to be, overly complex, costly and opaque, leading to some consumers ending up on costly contracts with disadvantageous terms.
Micro-businesses often rely on brokers to switch and weak broker regulation is allowing sharp practices by some brokers. Gaps in current consumer redress mechanisms add further to this harm.
The absence of rules concerning debt management in this segment of the market is resulting in some micro-businesses who are struggling with debt being treated unfairly and not benefiting from customer-focused debt management policies and processes.
Consultation responses are requested by the 21st June 2019 and Ofgem intend to present their updated position and next steps in winter 2019. Total Gas & Power will be actively engaging with Ofgem directly and through ICoSS, the I&C trade association, to ensure any remedies and regulatory changes are optimised for micro-business customers yet remain practical and sensible for energy suppliers.