Utility Week

22 | 29TH MARCH - 4TH APRIL 2019 | UTILITY WEEK Customers Analysis T he prospect of tighter regulation of third party intermediaries in the busi- ness energy market has been broadly welcomed by experts, amid criticism that self-regulation has failed. Critics claim the experience of small, medium-sized and microbusinesses has been very hit and miss. A year-long Competition and Markets Authority investigation in 2015 revealed considerable variation in the prices paid by SMEs (including microbusinesses), a signifi- cant minority of which are on more expen- sive default contracts and pay much more on average than other businesses. It estimated that fairer competition could save UK SME customers £500 million a year. Perhaps not surprisingly, the past few years has seen growing recognition of the business opportunities presented by the business energy switching market, leading to an influx in the number of third party intermediaries [TPIs], all promising to slash money off business customers' energy bills and vying for a slice of this lucrative pie. Important market players More recent analysis in Ofgem's State of the Energy Market Report 2018 finds that bro- kers offer an important avenue for small and microbusinesses to shop around and switch. In 2017, 67 per cent of those who switched tariff or supplier used a broker and 42 per cent of those who switched tariff or supplier said the broker was their main influence. However, growth of this market has also wit- nessed ongoing complaints from business users about some practices employed by some TPIs, prompting calls for tighter regula- tion of the business switching market. The experience of microbusiness custom- ers has been patchy, with just 63 per cent of users saying they are satisfied with the ser- vice they received from TPIs. Although this is a big improvement on Ofgem's 2015 findings, where only one in five microbusinesses and SMEs described their overall view of energy brokers as positive, there is a clear need for improvement. A lack of trust is partly driven by long- standing concerns about the behaviour of some TPIs, flagged up in complaints to vari- ous official bodies – including some TPIs making misleading claims, using pressure sales techniques, or even intermediaries claiming to act for official purposes. Back in 2015, Ofgem outlined its timeta- ble for a mandatory code of practice for the non-domestic TPI sector. It promised by the end of that year that key governance issues would be decided, and that it would transfer the reins to a governance board to imple- ment and monitor the code. More than three years on, regulation governing non-domestic TPIs is still waiting. In January this year, Ofgem announced that a microbusiness review would be con- ducted to include a proposal to extend protections aimed at non-domestic market consumers. It has promised to publish an opening statement over the coming months. "As part of our consideration of more funda- mental reforms to the retail market, we will carefully consider how the scope and form of our regulation may need to change," Ofgem said in a statement at the time. Lord Redesdale, chief executive of the Energy Managers Association and a former energy spokesman for the Liberal Demo- crats, is not overly optimistic that Ofgem's words will result in concrete changes. "My worry is that there are a large num- ber of cases of bad practice and Ofgem has failed in its duty to protect customers," he says. "The whole issue of TPIs charging fees and giving the impression that they're not will end up in front of the law courts before too long. Self-regulation is a joke. I'm just surprised that Ofgem hasn't done anything about it before now – this issue has been around for a long time." Steve Kirkwood, policy manager at Energy UK, says his organisation has long raised concerns about the role some TPIs, such as brokers, play in the small and microbusiness energy market. "Over two-thirds of these customers use brokers to help them secure their energy deal, yet TPIs remain an unregulated player in the energy market." TPIs are not subject to direct sectoral regulation in the same way as energy suppliers by Ofgem. They are subject to regulation under general consumer pro- tection rules, and in some cases have signed up to voluntary agreements governing their business practices and interactions with consumers. "We are concerned over the potential negative impact the lack of regulation might have on consumers – one bad experience with an unregulated broker could perma- nently dissuade them from engaging with their energy use and securing the best deal for their business in the future. "Ofgem's review of microbusiness protec- tions, launching soon, will look at what can be done in the short and medium-term to protect the smallest non-domestic custom- ers. Energy UK will be pushing for action to be taken to ensure customers are protected no matter how they engage," Kirkwood says. To boost engagement, customers should be confident that there are regulatory pro- tections when using a third party, just as they currently are when going to a supplier directly, he adds. "Depending on the findings of the review, things could start to change next year but we are conscious that these reforms will likely need government action, which has proved a stumbling block before." Energy UK's Future of Energy report, which looks at the future energy system from a con- sumer perspective, is due to be published at the end of July and will explore how the regu- latory regime could be reshaped to ensure appropriate protections are in place for con- sumers, both domestic and non-domestic, no matter how their methods of engagement with their energy evolve in the future. Seeking consensus "The industry is also keen to work with the recently launched Future Energy Retail Market Review, being led by BEIS [the Department for Business, Energy and Industrial Strategy] and Ofgem, to ensure these issues can be collabo- ratively addressed," Kirkwood adds. Wasim Musa, a business energy analyst at Yorkshire Energy, says the unregulated nature of the business switching market leaves customers, and especially microbusi- Time to get tougher on TPIs? Business energy switching gets less attention than the domestic market, but things are changing with calls for more regulation and an Ofgem review on the cards, reports Rachel Willcox.

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