It’s not unusual for new regulations to meet resistance. But it looks like Ofgem’s proposed Code of Practice for Third-Party Intermediaries (TPIs) could buck that trend and successfully deliver more protection for customers – if a few concerns can be resolved.
Ofgem recognises that TPIs – the consultants, brokers and other organisations who advise businesses about buying energy – are a vital part of a functioning and modern energy market.
And I think most TPIs understand the positive effects of honest and professional behaviour on customer satisfaction and trust. That’s why they hire people like Lyn Barnes, from Select Energy Direct in Blackpool, who won the Unsung Hero award at this year’s Energy Live Consultancy Awards. We sponsored that award this year, hoping to shine a light on the people in the TPI market who go above and beyond to give their customers a great service.
The energy market as a whole has some way to go to recover customers’ trust. In a large, long running study of trust in business, the 2014 Trust Barometer from global PR firm Edelman, the UK energy sector ranked bottom of the class of the 27 nations surveyed.
But TPIs are seen as mostly trustworthy. Last August, Cornwall Energy published a review of the way businesses and TPIs interact in the energy market. Of the 508 businesses surveyed, more than 70% said they value the help they get from their TPI.
So Ofgem hopes its Code of Practice will protect customers from those who may be abusing that position of trust; those who don’t seem to value the good reputation either of their own company or the energy industry as a whole.
At its heart, the proposed Code of Practice would hold TPIs to a set of principles:
Complete and clear information for clients, especially where fees are involved.
Honest marketing tactics when dealing with prospective new clients.
Effective monitoring arrangements to make sure clients get a good service.
Every day, as part of my role, I talk to both senior and operational staff at many energy consultants – the same TPIs Ofgem’s Code would affect – and I haven’t come across any resistance to these three principles. This jury of informed opinion seems to me to be broadly in favour of the Code as a way to build more trust and so bring in more business. When I caught up with Lyn Barnes just after her Unsung Hero award win, she summed it up neatly: “It’s a good thing.”
Where I have encountered reservations, they’ve been about how the Code will be implemented, not what it aims to achieve.
1. What size customers will the Code cover?
This is probably the most contentious issue at the moment. Right from the start, Ofgem has been clear that the Code needs to cover the whole of the non-domestic energy market, while some TPIs don’t think very large organisations really need the Code’s protection.
It’s true that there’s a big difference between a micro-business buying its energy on a cold call from a broker and a large corporation working with a TPI to hedge its energy risk. But that doesn’t mean the Code’s underlying principles don’t apply equally to both types of customer. Assuming a large organisation is big enough and ugly enough to look after itself, when in reality you could be talking about a single energy buyer putting all their faith in a TPI’s expertise, doesn’t sit right with me.
2. Who will enforce the Code?
There seem to be two schools of thought here: one where Ofgem regulates TPIs directly, and another where it passes some of that responsibility to suppliers through their supply licence conditions.
I’m not aware of any TPIs who want to be policed by suppliers, or of any suppliers who want to take on the task – although everyone wants to provide support for customers. If, as the market evolves, TPIs and suppliers start competing in new areas brought about by a smarter energy future, this option might become impractical anyway. While we like holding each to a high standard, no business wants to be regulated by its own competitors.
Whatever solution we reach, it needs to be cost-effective and fair for all TPIs. It should be funded by the market – some combination of TPIs, energy suppliers, customers and the regulator – and the apportionment of costs should be based on the value realised from the activity. That way, as the value of the market grows, so does the funding available to protect it.
3. What about the smaller players?
Providing effective monitoring and complete and clear information will potentially require investment. The smallest TPIs are often individuals using knowledge and expertise developed during lengthy careers within the energy industry. The risk is some of these players might not be able to access or afford the extra training or systems they need to abide by the Code. As long as the overall cost is sensible, suppliers, trade associations, aggregators and TPI franchises can all provide smaller players with support.
As the energy market evolves towards a smarter future, players of all types and sizes will need to invest in new skills and systems to stay relevant to what customers need. As long as this investment is driven by competition and the need to serve customers better in a smarter energy future, and not by excessive regulatory costs, it’s a good thing for the market as a whole.
4. When will the Code be finished?
I personally believe that Ofgem will deliver what the market needs, but many TPIs are worried about time scales. This programme started at the beginning of 2013. The task of identifying and accrediting TPIs hasn’t started yet, and no body has been appointed to run the Code, so it’s looking unlikely to be finished by the end of 2014.
Some parties are concerned over the utilisation of market expertise. Ofgem established a working group of 33 market experts – comprising of representatives from different types of TPIs, consumer bodies and energy suppliers and followed a structured and robust process. However it didn’t ever go into the specific operations of different areas of the TPI market. Hopefully most of these concerns have now been addressed in bilateral meetings with different types of TPIs, but if not there is probably an urgent need for specialist working groups focused on different types of TPI model. Otherwise we may end up in a position where the minimum standard is set too low and is too generic to be effective.
In the same way Ofgem has needed the support of market experts to date, I believe market experts will need to work hand in hand with Ofgem for a short period and the market then needs Ofgem to continue to support them until the final code has bedded in and is clearly delivering the underlying objectives everyone is waiting for.
To keep customers’ trust and to keep growing effectively, the market needs a mechanism like this. But it’s just as important that the mechanism gains the market’s trust.
In a competitive market, the players that invest in keeping up with change should thrive. Those who don’t invest should not be a barrier to progress – but they still need to be treated fairly. TPIs may need reassurance from customers and suppliers alike that as long as somebody is knowledgeable about the market, earns their clients’ trust and does business ethically and well, the market will always be large enough and appreciative enough to accommodate their contribution.
The thing I find most encouraging is that people are now having honest discussions about the existence of dishonest approaches. Just take a look at the frank opinions shared on our blog: 7 things to ask (and 3 to avoid) when choosing an energy broker or consultant.