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Publications / Blogs

Third Party Cover – Do we need to regulate TPIs?

In today’s energy market, Third-Party Intermediaries, or TPIs, are playing an increasingly important role in boosting competition and consumer engagement; helping to simplify their participation in what can sometimes be a complex market.

So we welcomed this week’s Call for Evidence from BEIS to examine how TPIs operate in the retail energy market and whether regulatory intervention is needed.

In recent years, third-party services have emerged as being the most popular method used by domestic consumers to compare energy deals, products and suppliers. For example, two-fifths of the participants in Ofgem’s 2019 Consumer Survey who switched supplier or tariff did so using a TPI. Meanwhile in the non-domestic sector, it is not new for third-parties to play a larger role in customer switching and engagement. According to Ofgem, in 2018 over two-thirds (67%) of small businesses and microbusinesses used an energy broker to help choose their current energy plan.

In addition to these established models, the transition to a smarter, more digital energy system means new, more innovative and potentially complex ones are starting to emerge – and will continue to do so – covering for example, bill splitting in shared households, aggregation and load control.

Identifying the Problem

Despite their growth and increasing importance, the GB regulatory regime has not kept pace with the evolution of TPIs in the retail energy market. At present, there is no effective regulation that exists to directly oversee TPI activities in the energy sector and to protect energy consumers from sharp practices or guarantee access to redress if things go wrong.

This is a problem given their prevalence and some customers are losing out as a result. Research from a range of industry stakeholders, such as Citizens Advice, indicates that not all TPIs are transparent about the service they offer, and, as such, the quality of service can be variable. In its 2017 Digital Comparison Tools consumer research report, for example, the Competition and Markets Authority (CMA) found that 3% of GB consumers who used PCWs across all markets had made a complaint. This was equivalent to 1.1 million people. In the non-domestic market, Ofgem’s Microbusiness Strategic Review identified a number of consumer harms that related to the conduct of energy brokers that were adversely affecting consumer experiences and outcomes.

Public support and engagement with the energy sector will be a crucial factor on the road to Net Zero. It is certainly high time then that we put in place appropriate regulation to ensure consumers are protected when using these services.

At the same time, we do need to be careful not to stifle with disproportionate regulation new and more innovative TPIs models that are only just coming to market – so a sensible approach to designing any new regulatory system is essential.

Finding a Solution

Energy UK believes that a two-tracked approach to the regulation of TPIs may be needed.

In the short term, we need direct regulation of existing and established TPI models. It is clear that existing TPIs (e.g. PCWs, auto-switching services, bill splitters, non-domestic energy brokers) already pose the risk of consumer harm.  We, therefore, would support the final recommendation of Citizens Advice in its 2020 Stuck in the Middle report that the introduction of an Authorisation Regime, governed by Ofgem, would be the most appropriate regulatory approach to existing TPIs operating within the UK energy sector.

An Authorisation Regime would provide a flexible and balanced regulatory approach empowering Ofgem to act proportionately according to the degree of non-compliance. Such a regime could (and must) also ensure that there is symmetry between different parties’ obligations for similar activities to create a level regulatory playing field, such as the marketing of energy products/services.

Looking further forward however, as newer and more innovative TPIs – such as aggregators – are only just beginning to emerge, it is our belief that more detailed thinking about how best to regulate these TPIs, and perhaps retail energy markets more broadly, is needed. This will require engagement between the UK Government, industry stakeholders and Ofgem.  BEIS will be continuing its work looking at the underlying framework of the retail energy market, and the wider role of new energy services should be part of that review.

For now, we welcome the publication of the Call for Evidence, and Energy UK will work with its members and BEIS to ensure that consumer harms are recognised, and that the most appropriate regulatory systems is put in place to protect against them as soon as possible.

It is vital that BEIS prioritises this workstream, to ensure that customers are appropriately protected both in today’s market and on our journey to Net-Zero.

Written by Paige Truelove, Policy Executive, Energy UK