Three’s a crowd? Government launches consultation on regulating TPIs

On 20 September 2024, the government launched a consultation seeking views on the regulation of Third-Party Intermediaries (TPIs) within the retail energy market.

TPIs often act as intermediaries between consumers and suppliers. TPIs can include energy brokers and consultants, price comparison websites, bill aggregators, and load controllers. In the non-domestic retail market, there are estimated to be as many as 2,200 brokers and consultants, with an estimated 50% of small and medium enterprises and 80% industrial and commercial businesses using TPIs. The consultation recognises the role that TPIs play in the market (particularly the non-domestic market) in helping customers find the right energy deal and encouraging the take up of clean energy sources, as well as energy efficiency measures.

The consultation focusses on enhancing consumer protections and market transparency and comes in response to concerns that some TPIs are ‘failing to adequately meet non-domestic and domestic customer needs.’ The consultation follows an earlier Call for Evidence on TPIs in the retail energy market and Ofgem’s non-domestic market review, the latter of which suggested the need for government intervention to directly regulate TPIs, to protect consumer interests.

The TPI landscape is currently fragmented, with different regulations applying depending on the type of TPI. The government considers that the establishment of different categories of regulation dealing with specific categories of TPI would be helpful for customers and would ease market entry for new TPIs.

This article outlines the which entities will be affected, the key proposals under the consultation and next steps.

Who does it impact?

The consultation proposes to split TPIs into three categories based on priority for inclusion in regulation: (1) ‘high priority – firm choices for inclusion’, (2) ‘lower priority – expanded scope, seeking stakeholder views’ and (3) ‘not in scope’.

High priority TPIs include energy brokers and consultations, price comparison websites/digital comparison tools, auto-switching services, bill splitters and sub-brokering. These types of TPIs are all currently unregulated. Potential harms identified by this class of TPI include sales malpractice, service issues, lack of transparency and customer service issues.

Lower priority TPIs include resellers, independent advanced meter data agents, aggregators for TPIs (such as a technology platform for sub-brokering practices) and artificial intelligence. Not in scope TPIs include load controllers (as they will be captured under a separate licence regime through the Energy Act 2023) and aggregators (i.e. suppliers or load controllers).

What are the key proposals under the consultation?

Regulatory options

The consultation includes a shortlist of options on how to regulate TPIs. The government’s preferred option is a general authorisation regime for both domestic and non-domestic TPIs whereby TPIs can carry out an activity provided they meet a set of conditions. The regulator will carry out enforcement activities if they identify that a TPI is not complying with these conditions.

This option is the middle ground between: (i) the current framework which consists mostly of voluntary codes of practice and indirect regulation via supplier licence conditions; and (ii) a specific authorisation regime that would require a TPI to obtain authorisation from the regulator before carrying out the regulated activity.

Design principles for a general authorisation regime

The consultation is proposing the following design principles that TPIs would need to follow under a general authorisation regime.

• Transparency and accuracy: This principle would mandate that TPIs clearly identify themselves as intermediaries, disclose their renumeration methods where appropriate, maintain accurate customer data, refrain from misrepresenting supplier contracts, and ensure that any referenced information is pertinent, accurate, and traceable. TPIs would also be required to ensure customers are fully aware of both the legally binding nature of supply contracts before entry into them and what happens after the initial contract ends.
  
  
• Treating customers fairly: This principle would ensure TPIs recommend appropriate supply contracts, clearly explain contract terms and charges, verify changes of occupancy before representation to suppliers, avoid high-pressure selling tactics, obtain and provide letters of authority consistently where applicable, and inform customers about potential contract termination fees.
  
  
• Clear route for dispute resolution: The principle would aim to establish a robust complaints mechanism and would mandate that TPIs maintain a readily accessible complaints procedure, aligning with the standards set up by the regulator or other recognised standards by an eventual Ombudsman service. TPIs would also be required to guide customers to designated external dispute resolution services and other independent sources like Citizens Advice.
  
  
• Appropriate data protection arrangements: This principle would cover TPIs’ duties around existing and future data protection regulations to instil confidence in customers about the handling of their data.
  
  
• Training, governance and compliance: This principle is aimed at ensuring TPIs and their representatives understand the requirements of the regulatory regime and implement an appropriate compliance monitoring process. This could include regular training, responsibility on the TPI to enforce compliance among its personnel and retention of evidence such as telephone recordings.
  
  
• Consideration of net zero and energy efficiency targets: This principle seeks to ensure that TPIs integrate consideration of net zero and energy efficiency targets into their operation, advice and service offerings. To comply, TPIs should actively educate and inform their clients and offer practical and expert advice.

Compliance and enforcement

The consultation suggests a designated regulator for the regime, with a preference for Ofgem. The regulator would put in place a monitoring programme and would also likely need to implement an auditing process to ensure that TPIs are compliant with the above principles. Enforcement activities would be initiated by the regulator upon receiving reports of non-compliance from relevant entities with standing, such as an Ombudsman or consumer organisation.

What are the next steps? 

The consultation closes on 15 November 2024, after which the government will issue a response in due course. If the government decides to introduce the regulation of TPIs through their preferred option of a general authorisation regime, we anticipate that the government response will include details on how they propose to do this.

Conclusion

The consultation responds to an evolving energy retail market where TPIs have an increasing role to play. No comprehensive regulatory framework for TPIs currently exists and from the government and Ofgem’s perspective, direct regulatory intervention is long overdue.

A principles-based approach under a general authorisation regime may be the neatest compromise to address rogue TPI concerns but also not be overly prescriptive and allow TPIs to remain flexible in their contract offerings. We would recommend that all affected parties which will include TPIs but also energy suppliers, businesses relying on TPIs for energy procurement and management and consumer groups take this opportunity to respond to the consultation’s proposals.