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Business energy price cap could save British SMEs £5.7 billion a year

MARKET regulation across the whole of the energy industry could save British SMEs £5.7 BILLION, according to experts after Ofgem began enforcing its domestic price cap on December 31.
Ofgem (the Office of Gas and Electricity Markets) expects to save 11 million people an average of £76 a year after ruling typical usage by a dual fuel customer will cost a maximum of £1,137 a year.
But while the cap protects the average household, small UK business are still falling victim to an industry described as an ‘unethical wild west’.
According to a briefing document prepared by Parliament, there are around 5.7m SMEs in Britain who could potentially be spending a staggering £5.7bn too much on their energy bills.
While Ofgem governs domestic customers, the business sector remains unregulated and unchecked which can add hundreds of thousands of pounds to energy bills a year.
This has created a situation where TPIs (third party intermediaries) are ‘preying on the weak’ and hitting small firms with ramped-up prices, according to Phil Foster, CEO of leading utility price comparison firm Love Energy Savings.
He said: “Smaller firms are suffering because there is no regulation to protect them from the third party companies that are overcharging them.
“And there has never been a better time to introduce proper controls now the charges for typical household use have been regulated.
“It is understandable that Ofgem wants to protect the domestic market. They’re looking out for the most vulnerable, typically the young and old.
“But there’s a real lack of transparency for business owners looking to improve their tariff.
“Regulation is needed for the increased charges incurred through third parties. We need a price cap, but in retail rather than on the wholesale price.
“The typical wholesale unit price is around 13.5p, and then on average a third party will add something along the lines of 2p on top.
“Anyone above that percentage will be overpaying.”
According to Ofgem, ‘tougher’ price controls for energy networks could deliver savings of more than £5bn to consumers over five years.
Its domestic rules cover the unit price of energy and standing charges — capping electricity at 17p per kWh and gas at 4p per kWh.
Foster says similar rules for the commercial sector would be unfair on energy companies as ‘typical usage’ will fluctuate depending on the type of business — so new regulation should be aimed towards TPCs (third party costs) added on by brokers.
These will typically negotiate a base rate with an energy supplier before a margin is then applied. The combined sum is what a business ends up paying.
But some suppliers are allowing brokers to apply an uncapped margin — ultimately short-changing the customer.
Foster said: “You can’t regulate a market when you don’t know who’s in it, and Ofgem have no idea how many TPIs are operating — not a clue.
“There’s no central register, there’s no accreditation code, there’s nothing.
“Before we can start looking at what’s being offered to business customers, let’s try and understand who’s in the market in the first place.”
He added: “This lack of regulation of the suppliers is allowing brokers to swoop in and prey on the weak, locking them into sky-high tariffs.
“There’s currently no protection for small firms. Often customers don’t even know they’re being ripped off
“And some suppliers are actively incentivising third-party intermediaries to apply larger margins. That shouldn’t be allowed.
“If you manufacture a Ford Fiesta, you can’t suddenly start selling it for £100,000 when it’s on the forecourt for £13,000 further down the road.
“Our model relies on good prices because we want a customer for life, not a one-off transaction.”
Ofgem says it will review its domestic price cap in February before adjusting it accordingly in April and October each year.
In 2020, it will then judge the effect the regulation has had on the energy market and decide whether to continue to cap for another year.
Operating predominantly in the microbusiness and SME field Bolton-based Love Energy Savings specialises in minimising utility costs.
Average annual bills for their customers are around £5,000, with a typical saving of £1,046 — 25 per cent of the overall bill.