Third-party intermediary regulation

The context

• Third-party intermediaries (TPIs) play an increasingly important role in boosting competition and supporting customers’ participation in what can sometimes be a complex market. They are key in the switching and engagement behaviours of customers. As the UK transitions to a smarter, more digital energy system, new, more innovative – and potentially complex – TPI models are emerging.
• TPIs help most non-domestic energy customers secure their contracts. In its review of the non-domestic market,¹ Ofgem found that TPIs work with around 60% of larger non-domestic customers and around 25-30% of smaller, non-domestic customers. Ofgem estimates that there are at least 2,000 TPIs operating in the market.
• The Retail Energy Code (REC) – the industry-level set of arrangements governing retail aspects of the energy market – has established a voluntary code of practice² (CoP) for TPIs, which requires the delivery of greater transparency and fair treatment for customers, and says that suppliers must work with CoP-accredited TPIs.
• Ofgem acknowledges the deficiency in consumer protection that the absence of TPI regulation permits in the energy market. It has called for the Government to consider implementing a regulatory regime for TPIs.³
• Where TPIs are securing energy contracts for small businesses, Ofgem will introduce a requirement for energy suppliers to work only with TPIs that are members of a customer dispute resolution and redress scheme. This will give these customers comfort that they will have access to a fair dispute resolution process, should problems arise in dealings.
• Citizens Advice has also called for the regulation of TPIs to protect customers.⁴

The challenge

• As the market evolves through the Net Zero transition, non-domestic customers’ experiences are marred by undesirable TPI behaviours.
• These include intimidating customers, leading them into long-term unsuitable energy contracts, and misleading non-domestic customers into believing the TPI is the energy supplier.
• TPIs are increasingly significant to the customer experience but the regulatory regime is out of step with their evolution in the retail energy market. This is a failure to protect energy customers.
• While the REC’s CoP for TPIs is better than a complete absence of measures for the protection of non-domestic customers, it works via rules set for suppliers. This means the role of TPI regulator effectively sits with energy suppliers, rather than a specific regulator.
  

What’s the solution?

• TPIs should be regulated. This is critical because of the vital role TPIs play in non-domestic customers’ engagement with the energy market, and the transition to Net Zero.
• Energy UK supports Citizens Advice’s recommendation of authorisation – which “allows companies to start and continue operating as long as they follow certain rules” – as a suitable option for TPI regulation.
• A TPI authorisation regime should be governed by a body that is afforded full regulatory powers. There is merit in its ways of operating being underpinned by principles established within the existing CoP for TPIs.
• An authorisation regime for TPIs will provide a flexible and balanced regulatory approach that empowers the appointed regulator to respond proportionately to non-compliance. To create a level regulatory playing field, such a regime must ensure there is symmetry between different parties’ obligations for similar activities.
• The regulatory regime must be sufficiently flexible to accommodate new and innovative TPIs. This would ensure consumers including businesses of all sizes are protected from harm as the market evolves.
  

¹ Ofgem (2023), Non-domestic market review: Findings and policy consultation
² RECCo (2024), Code of Practice for Non-Domestic Third-Party Intermediaries
³ DESNZ (2024), Putting consumers first: empowering and protecting energy consumers
⁴ Citizens Advice (2020), Stuck in the middle