CMA: Small firms being ripped off by £500m a year on energy, TPIs must disclose kickbacks

July 7, 2015

loadsamoney — Loadsamoney: TPIs and suppliers are making it out of small businesses, says CMA

The Competition & Markets Authority has suggested that the UK’s small businesses are overpaying on energy bills to the tune of £500 million per annum.

In a report published today the watchdog said third party intermediaries should be made to disclose more fully how and where they are making their money. The CMA has also proposed that more price comparison data and price comparison websites for small businesses are brought to market.

The CMA’s report into the UK energy market said Ofgem’s inability to make things happen at speed and government’s misguided attempts at allocating subsidies to certain technologies outside of a competitive framework were problematic.

Neither the wholesale markets nor vertical integration were major impediments to competition, it found. Some domestic customers were paying more than others for their energy because they were not actively switching supplier, said the CMA. Likewise small businesses.

The report suggested a need for reforms of locational charging and the introduction of locational transmission losses.

Meanwhile EMR elements such as the capacity mechanism and contracts for difference had merit, said the CMA. However, it pulled no punches when stating that Decc’s decision to allocate contracts for some renewables projects outside of the competitive CFD framework will cost UK businesses and consumers up to £4.5bn more than necessary over 15 years. Nuclear developers looking for Final Investment Decision enabling contracts from government might feel less optimistic as a result.

Decc’s allocation of renewables into subsidy pots was also suggested to be haphazard by the CMA.

Small businesses and TPIs

Alleged malpractices by third party intermediaries had damaged trust in the SME and microbusiness market, said the CMA. Lots of businesses are paying around a third over the odds for electricity due to rollover tariffs, and around a quarter more than they would pay on retention contracts for gas. Those on deemed contracts could be paying up to double the rates for energy when compared to retention contracts.

As a result, suppliers were making up to four times the margin on small businesses than for large customers. The difference in margins and tariffs could not be justified by risk or costs, said the CMA.

The report noted a lack of price transparency on small business tariffs, with a substantial proportion of microbusiness tariffs being negotiated between customer and supplier. The CMA is now proposing remedies such as making suppliers publish prices and making more data available to encourage price comparison websites for business energy.

The CMA also said that TPIs were not sufficiently transparent on how they were making their incentives by recommending suppliers and tariffs to businesses. It wants them to state whether they are genuinely making the best recommendation or whether they are simply representing deals from a limited number of energy suppliers. The CMA also wants TPIs to state clearly to customers how they are incentivised by suppliers for their recommendations.

See the provisional report and initial remedies here.

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