Third Party Intermediaries (TPIs) are playing an increasingly important role in the energy market. Energy regulator Ofgem recently held an event for intermediaries operating in the domestic and non-domestic retail energy market to make sure that they had the chance to provide input on the issues they are considering – notably, a range of policy programmes designed to improve outcomes for business customers.
In response to the event and the issues raised by Ofgem, Smarter Business published its responses that are informed from serving micro-businesses over the past 16 years. We believe they reflect the current dynamics of the market and, as such, are a fair and balanced account of the issues facing the industry. Here is an excerpt of the key issues:
Do you think awareness raising materials initiatives would be of significant benefit to microbusinesses?
We use case studies and comparisons to help customers understand their relative position. For larger or medium-sized companies, we undertake audits of their half hourly (HH) consumption over a period of three years to explore the energy usage pattern.
The challenge for all businesses is to understand how they use energy, as well as the proportion of tax they pay on energy consumption and whether they can mitigate these charges.
Ofgem could act to set out clear, empirical examples of consumption and management that could be used across the industry. As a secondary exercise, Ofgem could look to set out clearly the principles for businesses that have the capacity to generate excess energy with the routes to selling back to the grid set out.
To quote Tim Sealy-Fisher, Head of Corporate Sales (short-listed: 2019 Telca Consultant of the Year): “Outside of people like ourselves, the market offers very little education to support the (microbusiness) customer, and there is no transparency on market movements and how to take account of them in your planning; even less on how to reduce consumption.”
In summary, Ofgem could provide a blueprint for reduction and energy management; an initiative Smarter Business would support in its communication with customers.
What do you see as the most impactful issues microbusinesses face when attempting to effectively browse the market in search of an improved deal/service offering?
The price books presented by suppliers vary on a daily basis and reflect the dynamics of the wholesale market. As such, it is a challenge for energy retailers, let alone customers, to accurately predict and hold a quote – unless they are prepared to take market risk onto their book. Any customer can gain access to wholesale market pricing through the internet.
The challenge, which is similar to the spot prices quoted for currency is that SMEs cannot access the price shown as there are various levies: taxes, distribution and reseller charges to be taken into account. Therefore, to support microbusinesses, Ofgem would need to publish on its website the costs per kWh for businesses of all charges, except the reseller charge. The mechanic would allow customers to understand the base cost and they could then factor this into their negotiations with suppliers.
We also believe that microbusinesses fail to understand timing when securing supply as they fail to appreciate the rolling dynamic of the market, often leaving it too late to explore options. The remedy Smarter Business deploy is to share forward pricing (futures) information with customers; the challenge is that it takes time to educate the customer and we as a business want to satisfy ourselves that the customer is fully involved in the process and can, therefore, make an informed decision. Ofgem could act to provide clear pricing forecasts on a monthly basis targeting microbusiness to support wider market education.
Tim Sealy-Fisher: “The use of technology is archaic; we need to see more automation in the presentation of supplier quotes and pricing options for the customer.”
What do you see as the key issues microbusinesses face when they come to enter into a new contract for their energy supply?
We view all microbusiness customers in broad terms as vulnerable; in particular we recognise that buyers in the education, care and not for profit sectors are particularly at risk as they are not necessarily commercially driven and therefore need to have a detailed conversation with the seller in order to accurately describe their consumption, past and future.
As detailed above, customers may understand the bottom line but have limited understanding of:
- the components of their bill
- their ability to stagger or manage consumption
In summary, we believe that the business customer is getting a better service, provided they can find the right adviser. A combination of tighter financial controls by suppliers, investment by TPIs in their brands and business offerings and (in the case of Smarter Business) commitment to transparency are acting to remove unscrupulous operators from the market. Furthermore, actions by leading TPIs (Smarter Business included) to introduce standards of best practice will act to bifurcate the market between those with the scale and reputation to properly support business and those with specialist, niche skills.
We take our role and reputation in the industry seriously and we believe the standards of compliance and transparency that we submit to and enforce are benchmarks for the sector. We are therefore keen to engage with other significant TPIs to develop an agreed industry code of conduct and badge of compliance that can be used in marketing collateral – ideally in the vein of the British Standards Institute Kitemark – to identify best practice.