The UK energy regulator will force “unscrupulous” energy brokers to come clean about the true cost of their deals by revealing their hidden commission fees to help protect more than a million microbusinesses from being ripped off.
All energy brokers will need to disclose how much commission they stand to earn from their services after some rogue brokers conned charities, church groups and care homes by locking them into long-term bad-value gas and electricity contracts.
Ofgem hopes to root out these “poor practices” by forcing brokers to disclose their full commission fees upfront, and by offering microbusiness customers a 14-day cooling-off period after signing a new energy deal.
The regulator is setting out the measures almost 18 months after it was made aware that some energy brokers may have overcharged ultra-small companies by up to £2bn by hiding their commission fees.
Microbusinesses, which include sports clubs and public bodies, spend a total of about £25bn to cover their energy bills every year, of which almost two-thirds is bought through energy brokers. Unlike brokers selling mortgage or insurance deals, the energy middlemen are largely unregulated.
Ofgem’s investigation into “unscrupulous brokers”, which launched last summer, found that in one case, energy broker fees made up 50% of the total cost of the energy deal, or about £24,000. The customer was not aware of the hidden fee, it said.
Anna Rossington, the regulator’s interim retail director, said its new proposals would “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,” she said.
The regulator plans to work with the consumer charity Citizens Advice to help micro-companies understand their consumer rights and the new measures, which will take effect later this year.
Gillian Cooper, the head of energy policy at Citizens Advice, said the changes are a step forward in tackling the “bad practice” among some energy brokers “which can leave microbusinesses out of pocket”.
She added: “However, it’s a challenging time for microbusinesses and many still risk being subject to harsh debt recovery practices or losing money if their supplier fails. It’s vital that Ofgem and suppliers continue to improve support for those who are struggling with their bills, and work with microbusinesses to minimise the risk of disconnection.”