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Small businesses are waking up to mis-sold energy contracts

March 18, 2024

Small businesses are waking up to mis-sold energy contracts

Businesses have been waking up to the fact that their brokers or suppliers may have mis-sold them their energy contracts.

A specialist claims company recently reported that the court has awarded more than £10,000 to a small business in a successful claim brought against its energy supplier. The court found that there was a conflict of interest between the energy broker and the client, with the broker determining the size of the commission – which was at odds with what was best for the client. The judge found that the energy supplier was incentivised to keep brokers happy and had chosen not to reveal to clients the size or nature of commissions paid to brokers.

There are now many claims being brought against energy brokers and suppliers in relation to energy deals that clients signed up to without being told about commissions, or where they were unwittingly paying a hidden ‘mark-up’ on their energy costs. These claims can be brought by any non-domestic energy clients, including small businesses, charities, churches and care homes. In 2020, The Guardian newspaper reported that small businesses were being ‘conned out of £2bn by rogue energy brokers who lock them into long-term bad-value gas and electricity contracts, according to documents submitted to energy regulator Ofgem’.

Last December, Ofgem launched a statutory consultation on proposals to ensure businesses provide more clarity on the costs being paid to third party energy brokers.

The proposals will expand the existing rules on standards of conduct – which currently only apply to interactions with microbusinesses – to all businesses. This will make clear that suppliers should put customers first and will allow Ofgem to take action if an energy supplier does not behave well towards any customer, regardless of business size.

The regulator’s plans will also expand rules around transparency on what consumers are paying for third party services to all business consumers. Ofgem notes that many non-domestic consumers use third party intermediaries such as energy brokers to help find the best deal for the business. It says it believes all customers should be clear on the costs of these services and the costs of their supply contract; and so, it is proposing to extend the requirement for energy companies to separately show the costs of using a broker to all businesses, not just micro-businesses.

The Ofgem consultation closed on 31 January this year, and the proposals for tightening of the rules and bringing energy-related payments out into the open are certainly welcome.

In the meantime, small businesses and other non-domestic energy users who have been mis-sold energy contracts can look to Sentry Funding to support them in bringing what is now a growing number of these claims.


March 18, 2024

Insights