Ofgem is today expected to set out plans to give the UK’s smallest businesses better protection from miss-selling and profiteering by energy brokers.
The regulator, however, will stop short of fully regulating the market.
Its proposals are set to include obliging suppliers to only work with brokers that have signed up to an alternative dispute resolution scheme, and giving microbusinesses access to independent redress in the event of a dispute with an energy broker.
Microbusinesses are defined as those with up to ten employees, that use no more than 100MWh of power per year and no more than 293MWh gas. They make up the bulk of the UK’s 5.8m SMEs.
However, many of these small firms end up paying the highest rates for energy – because they are easy targets for pressure sales tactics from some bad actors. They can be bombarded with calls, often with misleading information around emergency rates and imminent disconnection, and can end up agreeing to long-term contracts at inflated prices. When the business realises what has happened – usually when they see their first bill – they can then be threatened with disconnection unless they either see out the multiyear contract or pay extortionate sums to end it. Some small firms have gone bust as a result.
While they can approach the Energy Ombudsman for redress, which can void a contract if it can be proven the small business has been wronged, the Ombudsman has no powers to force brokers to put things right for microbusinesses. “This is because brokers are unregulated and therefore fall outside our remit,” said the Ombudsman’s director of regulatory affairs, Ed Dodman.
Both the Ombudsman and consumer watchdog Citizens Advice welcomed Ofgem’s plans.
“The proposals … are good news for around 1.5m microbusinesses,” said chief executive Dame Gillian Guy. “Our research showed how the actions of unscrupulous brokers can lead to microbusinesses paying more than they need to, being aggressively pursued for debts and being needlessly disconnected.
“Cooling-off periods, brokers being part of alternative dispute resolution processes and other measures would provide microbusinesses with significantly improved protections.”
She urged Ofgem to ensure small firms hit by Covid-19 were treated fairly by suppliers chasing debt in the months ahead. As well as reduced regulatory oversight in the energy market, small firms have fewer protections than households when it comes to debt collection.
Ofgem’s proposed measures will include:
- Broker conduct principle: Introducing a principles-based requirement for suppliers to ensure brokers they work with conduct themselves appropriately
- Broker dispute resolution: Introducing a requirement for suppliers to only work with brokers signed up to an alternative dispute resolution scheme
- Informed contract choices: Applying targeted sales and marketing rules to suppliers and brokers they work with
- Broker commission transparency: Clarifying and expanding existing supply licence obligations to provide information about broker commission payments on contracts, bills and account statements
- Cooling-off period: Introducing a 14 day cooling-off period for microbusiness contracts
- Contract extensions: Requiring suppliers to maintain existing contract rates for up to 30 days while a switch is being processed
- Banning notification requirements: Banning suppliers from requiring microbusinesses to provide notice of their intent to switch
- Information: Ofgem also intends working collaboratively with leading consumer groups to improve awareness raising materials and information provision.
Update: Consultation now published. Details here, responses by 23 October, changes set to be implemented in 2021.
Iain Walker, Eon’s director of B2B Energy Sales, said:
“Ofgem’s proposals to tackle unscrupulous energy brokers are a welcome improvement to this market. This is something we’ve been calling out for a number of years, and in the absence of an industry-wide approach we were forced to go it alone and provide the security and transparency our customers deserve.
“When I talk to microbusiness customers many of them tell of poor experiences in the market; of being hounded by sales calls from brokers, a lack of clarity from the salespeople they’re talking to, who they represent and exactly how (and how much) they get paid.
“We took a stand against some of the sharp practices in this market back in 2012, creating our own TPI Code of Practice to provide a fairer, more transparent service for our customers. We did that in the hope that by leading the way we could help make the energy market a better place for our customers.
“Since then we’ve refused to do business with any brokers who’ve not signed up to the sales standards set down in that code of practice and we’ve proved that with the right controls and support in place, a core of professional TPIs can provide a valuable, transparent, compliant service for UK businesses.”
Ofgem’s press release cites case studies based on evidence submitted by Business Energy Claims, in which small businesses paid thousands in hidden commission to unscrupulous brokers. Business Energy Claims, which offers a no-win, no-fee service to businesses, counts Utilitywise founder Geoff Thompson as a director.
Thompson had exited Utilitywise well before it went bust last year. Its problems stemmed from overestimating consumption in energy contracts, with bonus structures predicated on inserting a pence per kilowatt hour uplift. Suppliers often paid commission upfront. When they found they were actually shifting far less energy, they asked for their commission back. Utilitywise then reviewed its contracts, found the problem to be widespread and posted a £31m operating loss.
According to Companies House filings, Utilitywise went under owing Total Gas & Power £5m, of which £3m was advanced commissions. The list of corporate creditors suggests Engie and SSE were also substantially out of pocket, with many other energy suppliers making up a long list. Utilitywise’s total debt stood at £94m.