- Ofgem reforms crack down on poor practice by energy brokers
- Broker commissions will be more transparent
- Microbusinesses will be able to ‘cool-off’ from inappropriate contracts.
Ofgem, the energy regulator, has set out final proposals to help millions of microbusiness customers get a better energy deal (1).
Energy brokers help busy microbusinesses to compare the market and find a better deal on their energy. But Ofgem found a minority of brokers engage in poor practices with opaque fees for brokerage services. In one case, 50% of the total contract cost (around £24,000) comprised broker commission fees that the consumer was not made aware of pre-contract (2).
Ofgem’s package of support would mean that information on broker commissions is clearer for customers, and would introduce a 14-day cooling-off period for new deals.
Microbusiness customers would also get access to an independent dispute resolution service if things go wrong.
Ofgem will work with Citizens Advice so microbusinesses know their consumer rights and how the business energy market works. (4).
These measures would take effect from later in 2021 following today’s consultation. In the meantime, Ofgem is urging microbusinesses to shop around for the best deal.
Ofgem’s Interim Director of Retail Anna Rossington said:
“With the impacts of the pandemic still being felt by many microbusinesses, it’s even more important to listen to the challenges these customers are facing in shopping around for their energy.
Ofgem’s proposals will crack down on poor practice and empower microbusiness customers by making it easier for them to get a better deal.
We are also sending out a clear signal to industry about the high standards we expect.”
Michael Anderson, Media & External Relations Manager, Ofgem.
Tel: 020 7901 7079
Notes to editors
1: Microbusiness Strategic Review: Statutory Consultation to modify the SLCs of all gas and electricity supply licences. Microbusinesses play a central role in the UK economy, providing a wide range of products and services. Latest government data suggests that there were over 5.7 million microbusinesses in the UK by 2020, accounting for 96% of all businesses, 33% of employment and 21% of turnover. Microbusinesses make up a significant proportion of energy expenditure too, with expenditure from all these meter points accounting for £3.4bn in 2020.
2: Brokers typically acquire commission for their services via charges included in the consumer’s supply contract. We have found that opacity around these fees and other poor practices by a minority of brokers is leading to some microbusinesses ending up on poor value deals. As one example, we identified a case involving a large microbusiness where 50% of the total contract cost (an estimated £24,000) consisted of broker commission fees that the consumer was not made aware of pre-contract.
3: In December 2020, the UK Government’s Energy White Paper committed to helping consumers get a fairer deal, including ensuring that the retail market regulatory framework covers third parties such as energy brokers and price comparison websites. Ofgem supports this commitment and has adapted this package of reforms to account for BEIS work in this area.
4: The specific measures include:
- Provision of principal contractual terms: Strengthening existing rules around the provision of principal contractual terms to ensure consumers receive this key information both pre- and post-contract agreement in all cases
- Brokerage cost transparency: Clarifying and strengthening existing supply licence obligations to provide information about brokerage costs on contractual documentation
- Broker dispute resolution: Introducing a requirement for suppliers to only work with brokers signed up to a qualifying alternative dispute resolution scheme
- Cooling-off period: Introducing a 14-day cooling-off period for microbusiness contracts
- Banning notification requirements: Banning suppliers from requiring microbusinesses to provide notice of their intent to switch
- Information and Awareness: Working collaboratively with Citizens Advice to create new and updated information so that microbusinesses can access up-to-date guidance and advice alongside communications to help further boost awareness of how the market operates and their rights as consumers.
5: UK Government: Department of Business, Energy & Industrial Strategy (BEIS): Energy White Paper: December 2020
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