Blog Post

New rules planned for Energy Suppliers as Ofgem vows to protect small businesses from unscrupulous Energy Brokers

Richard Simmonds • July 29, 2020

The energy regulator Ofgem has announced that it will protect small businesses by cracking down on energy brokers who rip them off.

What are Energy brokers?

An energy broker advises and helps businesses navigate the energy market.

They will typically speak to energy suppliers on the businesses behalf in order to leverage the best deals as well as handle supplier and any contract or energy billing issues.

Many brokers offer their services for free at the point of use and will instead receive their funding from commissions they receive from energy suppliers.

However, there is a catch as Ofgem’s ‘State of the Market Report 2019’ showed. As a result of using energy brokers, the average prices paid by micro-businesses are disproportionately higher than those paid by other businesses.

What’s the issue?

Unfortunately, as in every profession, there are unscrupulous energy brokers that are overcharging their clients. In this case, the focus is on small businesses and local bodies such as care homes.

A report released in 2019 titled ‘Micro and Small Business Engagement in Energy Markets’ paper (prepared for Ofgem by BMG Research Ltd) stated that just 18% of businesses describe their experience with brokers as ‘positive’, yet nearly 50% of all businesses use them.

Ofgem cited that currently up to two-thirds of microbusinesses use brokers to get the best deals and while many do, a large number are ripped off.

Ofgem has highlighted several cases where businesses have been hit by massive hidden charges or hugely overpaying a broker in hidden commission fees. Some businesses now owe tens of thousands of pounds as a result of these hidden fees with the energy broker attaining commission of 50% of a business’s energy bill.

No Regulation

Energy brokers aren’t regulated like other areas of the energy sector and calls for tougher scrutiny of them has been growing for a long time. Currently, an energy broker can set up their operations without the need for a licence and do not have to register with Ofgem.

There is also no code of conduct, training programmes or any barriers to entering the market at all.

Perhaps the biggest issue is that businesses that work with energy brokers have little in the way of protection when things go wrong, or they are ripped off.

“In too many cases, microbusinesses are hampered by a lack of transparency when using brokerage services and end up being locked into poor-value deals because they are not fully aware of what they are signing up to,” said Ofgem.

What does this mean for energy suppliers?

To tackle unscrupulous energy brokers, Ofgem has announced plans to introduce new rules and responsibilities for energy suppliers.

These new rules that will soon go into consultation will require energy supply companies to monitor the conduct of energy brokers that sell their energy deals and ensure that clients are made well aware of any commission fees and key contract details on their energy bills.

Plans for a new dispute resolution service that would see the supplier mediate between unhappy customers and the brokers will be introduced as well as a new two-week cooling-off period for businesses who have switched to a new energy supplier.

In short, the new proposals will see business deals come closer in line with the protections currently given to domestic energy customers.

“Giving microbusinesses access to independent redress in the event of a dispute with an energy broker is a positive step that will help to ensure fair treatment and address some of the issues we’ve seen around mis-selling of contracts. The proposed requirement for energy suppliers to work only with brokers signed up to an alternative dispute resolution scheme is also welcome as it will help to raise standards. Currently, as the ombudsman, we have the power to investigate misselling complaints involving brokers and void a contract that an energy supplier has with a microbusiness customer if we decide that a contract has been mis-sold. We are, however, unable to require brokers to take steps to put things right for the microbusiness,” said Ed Dodman, the regulatory affairs director at the Energy Ombudsman.