It seems a little odd to let the largely foreign-owned energy companies reward their loyal British business customers with rip-off prices and then, when they have the temerity to find an alternative supplier, give these companies a second chance to try to win back their customers? But this is exactly what Ofgem, the energy regulator, now does. Last month, the regulator cleared British Gas Business from abusing the formal customer switching process. The company had used the notification that it receives from rival suppliers that a customer wants to switch to trigger a final sales call with a lower offer. Its rivals are up in arms over Ofgem’s decision. The regulator admits that many are now considering following British Gas’ lead while others are threatening to take small businesses to court for breach of contract. The problem here is not, as Ofgem suggests, that small businesses end up being offered a lower price for their electricity and gas (why doesn’t British Gas offer a competitive rate in the first place?) Rather it is the impact this daft rule has on competition. Electricity4business, one small supplier trying to break into the market by offering low prices it has about 1% says it is losing £3m of “win-back” business each month because business customers are changing their minds after agreeing a contract. Another supplier, called BizzEnergy, was so concerned by this that it lodged the formal complaint that prompted Ofgem to get involved in the first place. Small businesses, unaware that they lack the protections extended to domestic consumers, may also feel slightly disheartened that thanks to British Gas they may face legal action from the supplier they have just spurned for breach of contract. The industry has censored British Gas as part of the industry’s self-regulatory role. But British Gas appealed this decision to Ofgem, the energy regulator, which admitted that the rules, as they stand, were not very clear on the matter. But for a regulator whose mantra is to “promote choice and value”, Ofgem is doing a pretty good job of sticking its head in the sand. Its response a review of the rules appears half-hearted at best. Behind the scenes, officials say the industry should sort it all out. After all, the market for the supply of electricity and gas to Britain’s small businesses is highly competitive. The figures do not appear to support this view. The six biggest suppliers control 96% of the market - suggesting an oligopoly. Naturally, this concentration of power is not encouraging good practice. Why, for instance, are 600,000 of the 1.7m businesses with electricity contracts - these are Electricity4business estimates - on hugely uncompetitive 28-day rates rather than more competitive fixed-term contracts? These businesses have not switched supplier since the deregulation of Britain’s electricity market in 1999, illustrating that small businesses are not always sophisticated buyers of goods and services. These businesses are throwing hundreds if not thousands of pounds away each year by not shopping around. Organisations such as the Federation of Small Businesses and Energywatch, the consumer body, are trying to raise awareness of the options. But they admit little progress has been made and are calling for more protection of small business customers. But is more regulation really what is needed here? Surely, nationwide awareness campaigns and the launch of more price comparison sites, such as catalyst-commercial.co.uk, will have more impact.

But Ofgem has a responsibility to ensure the regulations that already exist do not put small businesses at a disadvantage. The issue goes beyond the loophole British Gas has discovered. For instance, why does Ofgem require the energy suppliers to send out price change letters but not contract renewal letters? As we see below, this has allowed some energy groups to present these important documents as price offers, which to a busy small business owner can come across as nothing more than junk mail.