Ofgem launch the strategic review of the microbusiness market

On Friday, 3rd May 2019, Ofgem launched the anticipated strategic review of the microbusiness retail market that aims to identify measures to improve outcomes for microbusinesses. The call for evidence has set out their initial analysis and theories of harm alongside a microbusiness 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 have set out their expectation for how microbusinesses 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
  • Microbusinesses 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
  • Microbusinesses should experience a smooth, transparent and not overly complex switching and contracting process where they are treated fairly by all providers
  • Microbusinesses should benefit from open dialogue with service providers that is responsive to their needs on a range of issues while they are in-contract, e.g. debt management
  • Microbusinesses should be able to exit contracts without facing unnecessary fees, obstacles or complications

 

Ofgem have stated that the customer journey is currently hampered by theories of harm that spoil the microbusiness customer experience of the energy market.

 

Ofgem’s theories of harm

The smallest microbusinesses 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 places 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 microbusinesses than disengaged domestic consumers leading to disengaged microbusinesses overpaying for their energy.

Barriers to accessing, using and sharing consumption data are preventing some microbusinesses 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.

Awareness

A significant number of microbusinesses 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.

 

Browsing

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 microbusinesses not identifying the best deals.

 

Contracting

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.

Microbusinesses 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.

 

Dialogue

The absence of rules concerning debt management in this segment of the market is resulting in some microbusinesses who are struggling with debt being treated unfairly and not benefiting from customer-focused debt management policies and processes.

 

Next Steps

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.