Utility Week

UTILITY Week 17th February 2017

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28 | 17TH - 23RD FEBRUARY 2017 | UTILITY WEEK Markets & Trading Analysis S hould utility brokers be regulated? It's a question which reared its head in the energy sector years ago. Attempts to answer it there remain contentious and now, with the advent of water market opening, the role of brokers as intermediaries between water retailers and business customers is also causing a stir. While some insist that brokers need con- trols, others say the last thing either sector needs is more regulation. Despite attempts to introduce ever more stringent voluntary codes of conduct to con- trol brokers, in the energy sector, their activi- ties remain largely unchecked – beyond the remit of Ofgem's policing. According to Peter Sceats, co-founder of the water services broker Grand Union Water Company, this has encouraged some of the most "dreadful" customer service ever seen. "I call them Flash Harry business tactics, and they are at play in the energy market every single day," he tells Utility Week. Sceats is a vocal advocate for introducing firm regulation of broker activity across both energy and water. He insists that brokers "should be and should have been" subject to regulation by Ofgem and Ofwat respectively. He is not alone. Energy Managers Associa- tion (EMA) chief executive Rupert Redesdale says that while most third-party intermediar- ies (TPIs) give good service and drive down prices, "there is a significant number who do not". The EMA is concerned these abuses will be replicated in water unless transpar- ent systems are put in place to stop them. The regulators themselves have responded to concerns about the impact of broker activities on the customer experience with varying levels of enthusiasm for greater powers of intervention. Ofwat recently made it clear that it wants formal powers to regulate TPIs. It says their involvement in the business water retail mar- ket could provide "many direct benefits" to customers and facilitate higher levels of cus- tomer engagement, potentially encouraging a multi-utility market. However, Ofwat warns there is a risk that the activities of some TPIs may harm customers, especially small businesses, and insists that formal market regulation will be important in ensuring cus- tomers are treated fairly. But gaining more power to regulate is not directly within Ofwat's control. The decision rests with government, which, for now, looks unlikely to budge on the current arrange- ments. The Department for the Environment, Food and Rural Affairs says it will "keep under review" whether Ofwat should have powers to prevent inappropriate marketing activities, as Ofgem has in the energy sector. In the meantime, Ofwat can only consider what voluntary codes of practice it might construct for TPIs. Ofgem, meanwhile, has a mixed history in its dealings with energy brokers. It has some powers to regulate their work under the Busi- ness Protection from Misleading Marketing Regulations. But its attempt to introduce a mandatory TPI code of practice stalled in the high-pressure environment of the two-year Competition and Markets Authority probe and has yet to be resumed. "At the time, we told TPIs to take on vol- untary principles to treat businesses fairly while the investigation was ongoing," a spokesperson tells Utility Week. "The CMA found inconclusive evidence of TPI malprac- tice concerning microbusinesses. We will continue to monitor TPI behaviour and have powers to enforce the Business Protection from Misleading Marketing Regulations." For now, voluntary codes remain the favoured, if not entirely satisfactory, mecha- nism for defining good and bad practice in utilities brokerage. Grand Union Water Company is in the process of developing a "water procurement adviser code of conduct" – a six-point volun- tary code that prospective water brokers can sign up to. And the Utilities Intermediaries Association (UIA) – a trade group for utility brokers – requires its members to sign up to a code and keep to it. UIA operations direc- tor Rod Sinden has stated in Utility Week: "Ofwat, like the gas and electricity regula- tor Ofgem, has no governance over TPIs and will be introducing only a voluntary code of practice. Many TPIs will claim they work to this, but if anything goes wrong it has no teeth, as the ultimate sanction is to use the retailers' or suppliers' arbiter, which you can use whether a code of practice is involved or not." There are different varieties of brokers, and it is important not to place them all in the same category when talking about mis- selling and poor customer service. Graham Mann, senior partner at water management group H2O Building Services, tells Utility Week the true definition of a broker is "an intermediary between a customer and a sup- plier who will do a deal to reduce that cus- tomer's costs by negotiating a discount on their gas, power and water costs". Mann agrees that customers need protec- tion from the poor service of rogue brokers, but argues that regulating the entire broker market is not the answer. For water, he sug- gests seeing how things play out aer market opening and addressing any glaring issues at the end of the year. Northumbrian Water business develop- ment manager Colin Robinson writes on Twitter: "The clue is in the word rogue – if they are out to mislead then no amount of code of practice will stop them." In energy, voluntary codes have some support, but limited impact. Redesdale says there were negligible sign-ups to a voluntary code set up by the EMA – a sure sign that "voluntary codes don't work". Even those who support voluntary codes in principle, like Dave Cockshott, chief com- mercial officer at utility broker Inenco, say such schemes can "end up being rather lame", adding: "If you're going to have a code of conduct, it needs to have meaning and bite, and make people nervous about signing up to it; that is when I think there is value in them." The EMA has issued advice to Ofwat on how to proceed with governing brokers, based on its revised Ofgem dra code. Redes- dale says Ofwat has the power to act against retailers which put business through a TPI that is not signed up to a self-regulated code. The need to find a solution to broker regu- lation is real. Sales complaints received by Someone to watch over us Should brokers in the energy and water sectors be subject to regulation? Or would red tape limit customer choice and drive brokers from the market? Lois Vallely reports.

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