Business energy contracts: Ofgem’s views on ‘blend and extend’ option

A non-profit organisation has highlighted the need for Third Party Intermediaries regulation to protect small business customers during the energy price crisis

Ofgem has acknowledged that some suppliers are offering a ‘blend and extend’ contract option, which could be beneficial for business customers who signed contracts during peak wholesale prices without government support.

In its non-domestic market review and consultation, Ofgem said: “There has been an increase in ‘blend and extend’ tariff offers – we have gathered information that shows over 50% of suppliers now offer this.”

However, the energy regulator has stressed that this option may not be suitable for all customers, and suppliers might face affordability issues with this option.

Ofgem said: “Suppliers may not be able to offer contract renegotiation. This may be unaffordable for the supplier depending on their hedging strategy as they will have purchased energy to cover the initial contracts agreed with their customers.

“Also, options such as ‘blend and extend’ could result in affordability issues for customers, with higher bills being extended over a longer period, which may be higher than new contracts if future contract offers are lower.”

In response to Ofgem’s non-domestic energy market review, Tina McKenzie, Policy Chair of the Federation of Small Businesses, expressed the concerns of small firms regarding soaring energy costs and the conduct of energy suppliers.

While some energy suppliers have already adopted the ‘blend and extend’ proposals, McKenzie noted that small businesses have faced exclusion from the renegotiation process due to securing contracts through third-party brokers.

Ms McKenzie said: “The obligations from energy giants should not be limited just to their direct customers; they must stop washing their hands of customers whose deals are signed via a broker.

“The issue of small firms being charged disproportionate security deposits is something we constantly hear. Energy suppliers should follow Ofgem’s security deposit best practice guide and stop asking vulnerable small firms for large sums of upfront payments given many are working on little to no cash reserves.

“We’ve repeatedly urged the government to close a significant regulatory gap by introducing Third Party Intermediaries (TPIs) regulation, eliminating unethical practices in the sector.”

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