Energy is a confusing but necessary part of running any business, so the need for fairness and transparency has never been more important. Energy watchdog Ofgem plays a pivotal role in ensuring that the electricity and natural gas market in the UK is regulated and consumer interests are protected.

To address growing concerns about hidden fees and unfair practices by energy brokers and suppliers Ofgem is introducing new measures designed to enhance the transparency and fairness of energy contracts for non-domestic customers. These regulations, set to take effect in phases starting from October 2024, aim to provide greater protection for businesses, ensuring they receive clear information about broker fees and have access to effective complaints processes.

What is Ofgem?

Ofgem stands for the Office of Gas and Electricity Markets, it is the regulator for the electricity and natural gas markets in Great Britain. Established in 2019 to protect consumer interests, Ofgem ensures that energy suppliers operate fairly and transparently.

What does Ofgem do?

The watchdog’s primary functions include:

Promoting Competition: Encouraging competitive practices among suppliers to benefit consumers with better prices and services.

Protecting Consumers: Implementing regulations to safeguard consumers, especially vulnerable groups.

Transparency: Clear and honest communication of terms and costs from energy providers is required.

Why are Ofgem introducing new measures?

Ofgem is launching new rules to more closely regulate energy brokers after suppliers raised ‘serious concerns’ about the limited protections in place following an influx of complaints across the industry.

The energy regulator confirmed back in April 2024 that they would phase the introduction of new measures to guarantee greater transparency between brokers, suppliers, and businesses.

What are these changes?

Ofgem will soon begin phasing in new rules aimed at increasing transparency and fairness in energy contracts for non-domestic customers. These changes come in response to concerns raised by businesses over hidden fees and unfair practices by energy brokers.

Key Changes:

Disclosure of Broker Fees: From October 1, 2024, all energy contracts for non-domestic customers must clearly display any broker fees and provide this information upon request.

Standards of Conduct: Ofgem will have an expanded remit to challenge suppliers that treat non-domestic customers unfairly.

Complaints Processes: By December 2024, suppliers must implement appropriate complaints processes and collaborate only with brokers who are members of a recognised redress scheme, such as the Energy Ombudsman or the Utilities Intermediaries Association.

Protections for Small Businesses: These new measures will extend protections, previously only available to micro businesses, to any small business with fewer than 50 employees.

How will this impact your business?

These regulations are expected to provide greater transparency and protection for businesses, helping them avoid unexpected costs and ensuring fair treatment by energy suppliers and brokers. Organisations like UKHospitality have praised these steps, seeing them as significant progress towards a more equitable energy market for hospitality businesses and others.

How do energy brokers calculate their commission?

Energy brokers determine their commission through various methods, which can include:

Fixed Fee: A predetermined amount agreed upon by the broker and the client.

Percentage of Savings: A portion of the savings achieved by securing a lower energy rate compared to the client's previous contract.

Embedded Commission: A commission included within the energy contract rate, where the supplier pays the broker directly.

Hourly Rate: Charging based on the time spent negotiating and managing the energy contract.

The specific method often depends on the agreement between the broker and the client, the complexity of the contract, and market practices.

What have Ofgem said?

Tim Jarvis, the regulator’s director of markets, observed:

“Businesses are no different from any energy customer and should be able to expect excellent service and fair prices. However, we have heard from too many businesses, particularly small and medium-sized ones, that this isn’t always the case.

“Our proposals will ensure better deals, better protection and more clarity for businesses – so they have the best chance of thriving at this difficult time,” Jarvis added

“The consultation kick starts the process to bring in a new set of rules for suppliers to make sure they improve customer service and clearly set out costs for customers, including costs customers pay for third party services, like energy brokers.

All customers should expect fair treatment from their suppliers and these proposals would tighten the rules to make sure that happens”.