Government to appoint Ofgem as independent energy regulator for third party intermediaries & energy consultants (TPIs)

What does this mean for your business?

The UK Government is introducing new rules for energy brokers, consultants, third party intermediaries and comparison services. This legislation is designed to protect business, charities and private individuals.

Regulation of the TPI industry has been very slow moving, with the government and Ofgem allowing the industry to remain almost entirely unregulated for decades. From 1st October 2024, Ofgem brought in legislation that demanded that energy suppliers state the consultant commission rate on the energy contract, a step in the right direction. We have previously reported this change in detail here.

The government has further reviewed the industry following this change and concluded that the energy TPI market is good for consumers, as the majority have genuine expertise and are able to guide consumers through the complexities of the energy industry. However they have also acknowledged that there is a need for further regulation in the TPI market, as there are a far too large a number of TPIs whose advice is based on self-interest as opposed to what is best for the customer with unjustifiably high commission levels.

What is changing?

The government has decided that direct regulation is necessary to protect customers and have proposed that Ofgem are to be appointed as the regulator with powers to:

  • Have the authority to set principles and specific rules.
  • Require TPIs to register as authorised brokers that must meet clear standards for transparency, fairness and customer service.
  • Monitor, investigate and enforce compliance.
  • Impose penalties, redress payments and exclusions for misconduct.

The Ofgem regulatory powers will be funded via costs recovered from TPIs via an annual fee.

What are the benefits?

The Government hopes the benefits to customer will provide:

  • Clear explanation of fees and commissions.
  • Improved procurement practices to deliver better value energy contracts.
  • Assurance that TPIs are acting in the customer’s best interests.
  • Access to a formal complaints and redress procedure.
  • Accountability for non-compliant TPIs who will be subject to fines and removal from the market.

When will this happen?

  • Ofgem are due to conduct a market survey in 2026 in preparation for taking regulatory authority of the energy TPI market.
  • Legislation will then be introduced when parliamentary time allows.
  • After Ofgem’s formal appointment, TPIs will have a 12-18 month “sunrise period” to register; after that operating without authorisation will then become illegal.

This proposed regulation puts consumers first, it is designed to give more confidence to consumers in appointing an energy consultant to provide fairer, more competitive energy deals with fewer hidden costs and nasty surprises in the contract.

Noveus Energy has called for regulation in the TPI industry for many years, so this is welcome news. However, the government wording of “when time allows” creates uncertainty as to the timeline of this legislation change; in the current political environment, it could still be 2-3 years away.

What can you do in the meantime?

For the foreseeable future, the TPI market will remain largely unregulated, with the primary consumer protection being “buyer-beware.” It is imperative that consumers fully understand what they are signing up to when they agree energy contracts; Noveus Energy has previously published an extensive guide to energy procurement which can be found here.

Despite the regulation that came into effect in October 2024 ensuring commission rates are in the contract, we have still seen clients being charged incredibly high commission rates, up to 4p/kWh. Part of the issue we believe is that the commission rate does not translate to a monetary amount. 4p/kWh may well look like a reasonable commission to the untrained eye who has faith in their consultant. We believe that the annual cost should be included alongside the commission rate, which some suppliers already provide despite not being obligated to.

The chart below highlights the financial impact of various commission rates at corresponding kWh consumption levels. It is also worth noting that these are recurring annual fees; if a 3 year contract is signed, the above fees would be multiplied by 3.

As you can see a 4p/kWh commission rate for a customer using 5 million kWh per annum equates to an annual fee for the broker of £200,000. This clearly has a material impact on a business’ energy costs.

In addition to charging high commissions, we believe rogue brokers are failing to deliver the basic professional service their customers assume they should be receiving. Here are some questions…

  • Are they running competitive tenders or just sending one or two offers to the customer without a true market test?
  • Are customers persuaded to buy energy three to six years into the future in order to secure income for the broker?
  • Are customers receiving written documentation such as cost projections, product explanations and terms and conditions?
  • Are small and medium sized customers being encouraged to move to a more complex flexible, multi-purchase or basket product instead of the traditional “fixed price” contract?

About Noveus Energy

Noveus Energy was founded on the principle to provide exceptional service at a fair, transparent price. All of our clients always know exactly what fees they are paying for the services that they receive. If you are unsure of your current situation, please get in touch for a confidential conversation.  

Our reward comes from professional satisfaction and an exceptional high client retention rate. If you’d like to discuss how we can help your business please click here.