Posts Tagged ‘Ofgem’

New analysis from Ofgem shows that energy supplier costs are up by 15% since January 2016, primarily due to an increase in the wholesale gas and electricity markets, driven by a rising oil price and the weakness of the pound post-Brexit.

Despite this increase the Ofgem supplier cost index shows that costs remain below those at the start of 2014, with a sharp rise during the second half of 2016 following two years of falling costs.

While energy costs, particularly electricity, are on the up with further uncertainty likely, it remains a good time to be reviewing all contracts due for renewal in 2017 (if not beyond).

The easiest way to do this is to run an indicative tender to understand your exposure to rising markets and the impact of further increases, and if it makes sense lock-in future contracts now to protect you from further market fluctuations.

 

 

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To no great surprise Ofgem announced that it had abandoned attempts to introduce a code of conduct for energy brokers/consultants, despite several years, numerous consultations and innumerable workshops.

The code was intended to be a set of standards that set a benchmark for high quality consultants acting as intermediaries between non-domestic energy users and suppliers, protecting businesses from unprofessional and misleading tactics. Initial plans from Ofgem indicating that suppliers would only be able to work with consultants who had signed up to the code of practice have now been scrapped.

Ofgem reported that they found inconclusive evidence of consultant malpractice, so has postponed further work on the code and instead said that consultants should take on voluntary principles to treat businesses fairly.

Things to be aware of when working with a consultant…

  • some consultants may represent a single or small group of suppliers rather than the whole market
  • you’re not obliged to accept an offer from a consultant: ensure you understand their services, fees and T&Cs before accepting
  • make sure you’re comparing like-for-like: supplier and consultant price offers may not be presented in the same way, some charges may be pass-though and therefore vary during the contract lifetime, while others are fixed

Questions for your consultant…

  • how many suppliers will be approached for prices?
  • what will you do to help switch supplier?
  • what other services are included during the life of the contract?
  • how do you charge for your services – a direct fee or an indirect commission?

Although Ofgem doesn’t licence consultants, they must comply with consumer protection legislation such as the Business Protection from Misleading Marketing Regulations (BPMMRs) – and since November 2013 Ofgem has the power to apply to the courts for an injunction to prevent breaches of the BPMMRs.

The implementation of Ofgem regulation P272 from April 2017 means that around 155,000 electricity supply points will move to half-hourly billing from next April (if not before).

The new ruling affects supply points with Meter Point Administration Number (MPAN) profile classes beginning 05, 06, 07 or 08 (the first 2 digits of the 22-digit supply identification MPAN). Those beginning with 00, 01, 02, 03 and 04 will see no change.

While the intention is to offer these businesses cheaper off-peak electricity and therefore incentivise them to cut consumption at peak periods, it could lead to higher costs for those which have little choice on when they use power (eg schools).

In the short-term those renewing supply contracts for 05-08 supplies should prepare for and understand the changes…

  1. Suppliers are taking different approaches to the change, with some transferring supplies to half-hourly rates within 45 days of a new contract starting, while others are waiting until nearer April 2017. As P272 means new charges apply to your supply it’s important to understand the approach being taken by your supplier.
  2. Supplies renewing in the next few months should receive a non-half hourly (as before) offer, along with a half-hourly price, which means you should be able to compare the change in overall cost.
  3. The principle new cost you’ll see is a capacity charge, which is the maximum electricity you can draw from the grid at any one moment, determined by the local Distribution Network Operator (DNO). The capacity level should reflect your actual demand so needs to be monitored to ensure you’re not paying for something you’re not using.
  4. Half-Hourly supplies also incur Meter Operating (MOP) and Data Collector/Aggregator (DC/DC) charges: the MOP covers the installation and maintenance of the meter, while the DC/DA pays for the collection of meter data and passing it to the supplier. These charges can vary widely, particularly if you’re put onto default contracts, so do shop around for the best options.

Do get in touch to find out more about how P272 could impact your organisation.

Another week, another fine for one of the big 6 energy companies.

This time it’s British Gas which has been slapped with a £5.6 million penalty by Ofgem for blocking businesses from switching suppliers.

Due to a failure in British Gas’ computer systems around 5.6% of the objections made by British Gas to business customers wanting to change suppliers were invalid, preventing them in many cases from switching to better value tariffs.

They also failed to inform 1,200 businesses that their contracts were about to end, which meant that these customers, mainly micro-businesses, did not have the opportunity to shop around for better renewal prices, and were forced to continue on the same rates or rolled over onto more expensive standard tariffs.

While all large energy suppliers have now pledged to end auto-rollovers, it’s still important to start looking at your next energy contract well in advance

  • When you contract your energy supply is the biggest factor in the price you pay
  • The wholesale price of energy is at its lowest level for over 2 years, so if your contracts expire in the next 12 months don’t wait for the market to rise
  • Avoid punitive automatic renewal or out-of-contract rates
  • Make sure you have time to check the T&Cs
  • Put yourself in control: starting the process early puts you in charge – you decide what the best contract and best price is for your business

Ofgem this week announced, to no great surprise, that it was referring the energy market to the Competition and Markets Authority (CMA) to investigate whether reforms could make competition in the sector more effective.

The 18 month assessment will investigate a market characterised by…

  • the big 6 suppliers maintaining market share as customer switching has fallen over recent years
  • consumer trust also continuing to fall, with 43% of customers saying they don’t trust suppliers, up 4% from the previous year
  • incumbent suppliers charging higher prices to ‘sticky’ customers who don’t shop around
  • possible tacit pricing coordination eg through alignment of pricing announcements, indicating a lack of competition
  • big 6 suppliers characterised by vertical integration – they generate energy, sell it to themselves and then consumers – which results in a lack of price transparency and possible barriers to new entrants
  • increasing supplier profits over the last four years, with no indication of efficiency improvements driving those profits

 What next?

Probably the biggest issue that the investigation will assess is whether vertical integration is in the best interest of consumers, or whether the generation and supply of energy should be separated (a move SSE is already initiating, along with a domestic supply price freeze to 2016). If separation is mandated it will lead to the biggest shake-up in the sector since privatisation.

Impact on business customers

While the competition investigation is mainly focused on the domestic and small business market, the uncertainty created by the investigation will have consequences for larger business users:

  • the Major Energy Users Council (MEUC) is warning its members to expect price volatility next winter, along with greater potential for supply disruption
  • Centrica (owner of British Gas) has stated that the uncertainty will extend by two years the timescale for new gas-fired generation, creating potential supply shortages as coal-fired generation closes before replacement generation is in place

Ofgem’s long-awaited proposals to regulate energy brokers/consultants came a step closer recently with the release of a draft code of practice, which would require :

  • brokers and consultants to be completely transparent about their fees, the contracts they offer and which suppliers they represent.
  • energy suppliers to only work with brokers who have signed up to the new code

The aim is to protect businesses from misselling and drive up standards in the industry. The strongest enforcement element is the requirement for suppliers to only work with accredited brokers/consultants, which ensures that suppliers and brokers are accountable for delivering a high quality of service.

Since November last year Ofgem has had the power to act against brokers who market their services in a misleading way, but the proposed code would increase the protection for businesses.

What does this mean for you?

With the code not due for implementation until later in the year, there are a few important questions to ask that can help ensure you receive a quality, transparent service:

  • Does the broker cover the entire supplier market, or represent only 1-2 suppliers?
  • How do they get paid? No energy broking service is truly free, so ensure you know whether a commission or fee is included in your contract price – and ensure that the fee is the same regardless of supplier

Reputable consultants and brokers already abide by a code of conduct from either the Association of Cost Management Consultants or Utilities Intermediaries Association.

What does this mean for your broker?

It seems likely that the planned code of conduct and supplier accreditation system will see a reduction in the estimated 1,000 brokers and consultants in the UK.

Suppliers may only accredit brokers who can bring them significant energy volumes in order to maintain quality and minimise administration costs; ensuring that 1,000+brokers are adhering to the code could be expensive, particularly if many only place small energy volumes.

The sector may therefore see a period of consolidation, so it’s worth checking now whether your broker is aware of the draft code of conduct and how they plan to comply.

Although Ofgem has new powers to take action against suppliers and energy brokers who missell energy, there are still a number of measures that businesses should take to ensure they’re making the best decisions about their energy contracts:

  • ensure that your broker covers the entire supplier market, not just the ‘big 6’ or a select few suppliers
  • check that they receive a standard commission % or payment regardless of supplier they recommend, and are therefore completely independent
  • know your contract end date: if you go out of contract you’ll usually be put on to punitive rates until you enter another contract
  • don’t just accept your renewal quote: shop around yourself or with the help of an energy consultant, as there are often savings to be made by switching
  • if using an energy broker/consultant ensure they’re a member of one of the industry bodies (eg Association of Cost Management Consultants or Utilities Intermediaries Association), which have strict codes of conduct

Above all, don’t wait until the few weeks before renewal to look at your energy contract; start reviewing the market at least 6 months in advance so you can minimise the risk of volatile and rising prices.

Ofgem has added to the political and media pressure on the energy industry by rejecting business plans from five of the six companies running the UK’s electricity distribution network for not providing consumers with value for money.

The only plan to pass, that of Western Power Distribution which owns and operates the distribution network in south Wales, the Midlands and the South West of England, will see a cut of 11.6% in the distribution element of electricity costs over the period 2015-23.

Distribution costs account for around 19% of the average household electricity bill, although the amount varies by region to reflect the cost of distributing energy to different parts of the country.

The other five distribution companies will have to re-submit their plans next year, demonstrating further cost reductions.

In 2007 these non-energy charges accounted for around 25% of total electricity costs; that proportion is now nearer 40%, so any reduction, however small, is to be welcomed.

Ofgem announced last week that it has been granted new powers to crack down on rogue energy brokers who missell energy to businesses.

Under the Business Protection from Misleading Marketing Regulations, Ofgem can now take action against misleading marketing and advertising. The new powers follow a survey that found around one-third of small businesses did not believe brokers had been upfront about the costs of their services.

According to an Ofgem spokesman, “Getting help from a broker can assist in keeping bills down, but business consumers need to feel confident that they know – and get – what they’re paying their broker for”.

Ofgem also expects to release a new energy broker code of conduct for consultation in December, setting out how they should behave in a fair and transparent way in order to improve business confidence.

The code is likely to be based upon existing voluntary codes from the Association of Cost Management Consultants and Utilities Intermediaries Association), which regulate the practices and encourage transparency among their members.

Questions for your energy broker

In the meantime, a few key questions can quickly determine the transparency and competence of your current or prospective energy broker:

  • Are they fully independent of all suppliers, or do they represent an individual supplier or only part of the market?
  • How do they make money? No energy broker/switching service is truly free, all brokers, consultants or switching websites receive payment of some kind, usually a supplier-paid commission or fixed fee so make sure you know how you’re being charged.
  • Are they an energy expert, or do they also provide for instance telecoms or insurance services? If so, do they have the technical energy market expertise needed to advise on the correct time to go to market, avoiding energy market price spikes, and understand the increasingly complex fixed and flexible products now available?
  • What other services and value do they provide? eg invoice validation, consumption monitoring, energy efficiency advice

The anticipated Autumn price rises have come to pass, with npower following in the footsteps of SSE and British Gas in announcing a domestic price rise of 10.4% from 1 December, slightly higher than SSE and BG.

The remaining members of the ‘big 6’ suppliers are expected to announce their own increases shortly (presumably hoping that the media focus has waned by that time).

The companies blamed increasing wholesale energy costs and growing government green taxes for the price rises.

The announcements generated significant coverage, anger and accusations between suppliers, government and opposition politicians as to the causes, profit levels and means to reduce future price rises, but apart from considerable quantities of hot air, there was little comfort for either domestic or business users.

To add to the energy storm, Scottish Power was the latest company to be fined by Ofgem for misselling, £8.5 million for misleading doorstep and telephone selling during 2009-12.

With price rises now seemingly a fact of life, the main way to minimise future increases is to procure smartly: don’t wait until the few weeks before renewal to look at your energy contract; start reviewing the market at least 6 months in advance so you can minimise the risk of volatile and rising prices.

This doesn’t commit you to anything, just ensures that you have the flexibility to sign your next contract when prices are low, rather than waiting until nearer renewal when you’re at the mercy of a volatile wholesale energy market.