Ofgem unveils new requirements for energy brokers that seek to protect microbusinesses

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OFGEM has unveiled plans to tackle unscrupulous energy brokers to protect microbusinesses.

Two out of three microbusinesses use an energy broker when choosing their current energy contract and many of them benefit from the advice of a reputable broker.

Ofgem found that a small number of microbusinesses were paying thousands more than they needed to in broker commission charges.

According to the regulator, these proposals will help all those using a broker to get value for money when using brokerage services.

However, an Ofgem review found that 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.’

Philippa Pickford, Ofgem’s Director of Future Retail Markets, Consumers & Markets commented: “Providing greater transparency and tackling unscrupulous brokers will help microbusinesses get a better, fairer energy deal.

“This is more important than ever as microbusinesses emerge from the challenges posed by the COVID-19 pandemic.

“These proposals are part of Ofgem’s wider work to improve the energy retail market through smart metering, extra support for vulnerable customers, plus faster and more reliable switching.”

According to UK Government data, there were over 5.6 million microbusinesses in the UK by 2019, accounting for 96% of all businesses, 33% of employment and 22% of turnover.

For these measures, microbusinesses are defined as non-domestic consumers who have fewer than ten employees, with an annual turnover of less than 2 million euros, or use no more than 100 MWh of electricity per year, and/or no more than 293 MWh of gas per year.

Not all microbusinesses have a non-domestic energy supply contract, but Ofgem estimates that their proposals will help the approximately 1.5 million microbusinesses with a non-domestic electricity or gas supply contract to secure a fairer deal.

According to the regulator, today’s proposals will make shopping around for an energy deal ‘simpler, quicker, and fairer for microbusinesses.’

The proposals would require suppliers to ensure that brokers they work with conduct themselves appropriately when interacting with customers and to make commission fees and key contract details clearer.

Where things go wrong, microbusinesses will be able to resolve disputes with energy brokers through an independent body.

Microbusinesses will also find it easier to switch as ‘administrative barriers are removed.’

The package of measures set out in the policy consultation includes:

  • 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.