Beware the rogue energy suppliers

Look out for rogue “energy brokers” seeking to sell small businesses poor-value gas and electricity contracts. That’s the message from Ofgem, the energy industry regulator, which has just launched an investigation into mis-selling to small businesses.

Ofgem’s probe reflects mounting concern about brokers claiming to offer free consultancy services to small businesses looking for a better deal on gas and electricity. In some cases, these brokers choose products and services from a small panel of suppliers that pay them the most generous commissions; very often the deals recommended are poor value, carrying high charges and often locking in small businesses for extended periods.

The scale of the scandal is potentially enormous. Ofgem estimates that of the £25bn spent on energy bills each year by small businesses, charities and public bodies, around half the money relates to a contract sold by a broker. As much as £2.25bn of the total spend is accounted for by brokers’ sales commissions, according to some in the industry.

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Previous Ofgem investigations have rejected tighter regulation of energy brokers, but a growing number of legal cases where small businesses have sued brokers and secured high-value compensation payments are increasing pressure on the regulator to take action.