Maximum Award change for non-domestic energy disputes – closed with decision

Maximum award change for non-domestic energy disputes

As we prepare for our upcoming remit extension, which will allow small businesses to use our services from 19 December 2024, we invited views on our minded-to position to increase our maximum award for non-domestic energy disputes.

Our proposal

Within our proposal, we shared our position that our current £10,000 maximum award will not be enough to handle all future disputes, especially for small businesses. We therefore proposed that it would be appropriate to increase the maximum award to £20,000 for non-domestic cases. This increase reflects the approximate doubling of the energy consumption limits for small businesses in our new remit under the Ofgem small business definition.

Our decision-making process

We invited stakeholder views on our proposal from 4^th September – 2^nd October 2024. We received eight responses and have considered all those responses in arriving at our decision. Below we have set out the key themes from the responses, and addressed each theme with our decision and justification.

General stakeholder responses

We would like to thank all organisations who took the time to respond to our proposal. It is useful to understand the views of a wide range of stakeholders when considering such an important decision to ensure we can provide the best service possible for small businesses.

Inevitably, a range of views were expressed. Five of the organisations broadly agreed that it was reasonable for us to increase our maximum award for disputes made by small businesses, while three of the organisations disagreed.

Some respondents said that they supported the increase in the maximum award to £20,000 for small businesses as it recognised the higher energy usage and turnover of small businesses. However, they felt that no change was required for domestic and microbusiness consumers. One suggested the increase was insufficient and should be increased to £50,000.

Of those respondents who did not agree that an increase was justified, it was argued that there was insufficient evidence to warrant an increase in the maximum award at this moment and their data showed most awards were significantly less than the current maximum.

The point was also made that, while small businesses may consume more energy and have larger bills than microbusinesses do, they may also have larger budgets and greater reserves, suggesting that their potential for detriment might be comparable, or even less. Another concern was raised that an increase in the maximum award would have an inflationary effect on all our awards.

Outcome

All respondents provided constructive and thoughtful feedback, which has been carefully considered in our decision-making process.

We have decided that we will increase the maximum award for all new non-domestic energy supply disputes considered by Energy Ombudsman to £20,000 from 19 December 2024.

We will review the maximum award after six months to ensure that it is fit for purpose, enabling us to appropriately address the impact on businesses when issues arise.

We have decided not to increase the maximum award for our brokers scheme, which will remain at £10,000.

The reason for our decision

Our experience tells us that we are regularly requiring awards with a value of several thousand pounds in microbusiness disputes and, in a small but significant number of cases, the value of awards is over £10,000.

This is not fully represented in our awards data, as it does not always include the value of the corrective action we might require – for example when we do not know the value of a bill recalculation. Therefore, our average award data is not helpful in understanding what the maximum award should be. We are currently making some large awards on a regular basis for disputes made by microbusinesses and are likely to make larger awards in disputes when our remit expands.

We note that some respondents have suggested that we wait until the scheme has been ongoing for a period of time before reviewing whether our maximum award is sufficient. We consider, however, that we have sufficient insight from the microbusiness disputes we handle today to show that, in the initial period, there would be significant risk that we would not be able to resolve a proportion of the disputes we receive from small businesses. That would therefore act against the intention of our remit extension.

Regarding the suggestion to only increase the maximum award for small business disputes, we agree that the current limit is not regularly a barrier to resolving disputes involving microbusinesses. Therefore, increasing the maximum award is likely to have little impact on disputes from those businesses. However, we also think it would be wrong for us to be in a position where we were unable to resolve a dispute from a microbusiness valued at £15,000 but we were in a position to resolve a dispute from a small business with the same value. For this reason, we believe it reasonable to increase the limit for all non-domestic disputes.

One respondent suggested that if we increase our maximum award, it might lead to "award inflation", increasing the financial amounts we require in all cases. We can assure the respondent that this is not our intention. Our awards are determined by two factors: (1) any financial loss the consumer has suffered as a result of being treated unfairly. This component of the award is solely based on the circumstances of the dispute; and (2) a time and trouble award to recognise the distress and/or inconvenience the consumer has experienced as a result of the dispute. Our time and trouble awards guidance has not been changed as a result of the increase in the maximum award and therefore the amounts we require will not change.

Our rationale for maintaining the maximum award at £10,000 for the broker scheme is based on the complexity of alternative dispute resolution (ADR) within the broker market, where multiple ADR schemes are in operation. We recognise that this is not an ideal situation however, in light of the current consultation by the Department for Energy Security and Net Zero on regulation in this market, we will await a decision before reviewing this further.

Preparations for our small business remit extension

You can read more about our plans as we move toward the scheme launch here.