UK businesses urge energy watchdog to act on suppliers’ bad behaviour

A leading business group has called on the UK energy regulator to take urgent action against providers that are found to be mistreating corporate customers, as high gas and electricity costs continue to put many small companies at risk of collapse.

In a letter seen by the Financial Times, the Institute of Directors urged Ofgem to “secure a well-functioning market for non-domestic customers”, after a poll of its members found that about one in five had been subject to “at least some form” of negative behaviour by their energy supplier.

The most common problems cited by the almost 1,000 small business leaders surveyed in January included demands for a larger share of the bill to be paid in advance, a refusal to negotiate payment terms and a refusal to renew a contract.

Other IoD members pointed to failures to process refunds and communicate increases to tariffs, as well as moves by suppliers to bill them every month rather than every three months, while noting that their energy costs remained double what they were the year before.

The letter comes after Ofgem was accused of being “asleep at the wheel” following reports of malpractice in the domestic market, and ahead of the conclusion of a review by the watchdog into the business market.

Chancellor Jeremy Hunt has asked to receive its findings before his spring Budget on March 15, with the government expected to slash energy subsidies for companies in April.

Discounts on bills — which took effect after the Ukraine war sent prices soaring — are expected to be much less generous than at present, although there will be extra support for businesses in “energy-intensive” industries such as manufacturing.

In a separate IoD survey assessing optimism among business leaders for the UK’s economic prospects, more than 40 per cent cited the cost of energy as one of the main “negative issues” facing their organisations.

The IoD also warned that its members were being made to sign up to energy supply contracts that insisted on the inclusion of “take or pay” clauses, where they were forced to take an agreed-upon amount of energy from a seller by a certain date or pay a set penalty.

The business group said that this practice undermined the ability of non-domestic customers to both reduce their energy consumption and to transition to alternative, low-carbon forms of energy supply.

In his letter, IoD director-general Jonathan Geldart called on the watchdog to identify and take actions to address the concerns raised by businesses.

Geldart told the Financial Times: “At a time when energy prices are at an all-time high, it is important that the energy regulator ensures that any unnecessary burdens for businesses are removed.”

Ofgem said it was “aware that some businesses are having problems in getting fixed-rate energy deals and also that some are being asked to pay large deposits by some suppliers”.

“We are working with government and stakeholders to determine if further action or assistance is needed to help businesses, in addition to looking at compliance with existing requirements,” it added.

Writing to Ofgem in January, Hunt said concerns had been raised “about particular challenges some nondomestic customers are facing in the energy market [relating] to both the pricing and availability of tariffs, including increased standing charges, prohibitive contract renewal terms, and in some cases decisions by individual suppliers to withdraw from supplying particular sectors”. 

In response, Ofgem chief Jonathan Brearley confirmed that the regulator was reviewing the non-domestic market and that it would launch a further call for evidence about companies’ experiences of dealing with providers.

“We will look at where we may need to make changes to regulations and are also reviewing whether suppliers are complying with existing requirements,” said Brearley.