Energy suppliers must do more to help firms tied to brokers this winter

Energy suppliers should be looking to help all of its business customers survive the winter including firms tied to third party deals, a leading UK trade group has warned.

Martin McTague, national chair for the Federation of Small Businesses (FSB), told City PM that energy giants were failing to meet their obligations, instead “washing their hands of customers whose deals are signed via a broker.”

He slammed energy giants have for excluding firms from ‘blend and extend’ options if they had signed through a third party.

“While a handful of energy suppliers have followed our ‘blend and extend’ calls, this hasn’t been universally adopted. Small businesses have also been complaining to us that they were excluded from renegotiations because they secured contracts through a third-party broker,” he said.

Blend and extend is when a supplier waters down costs in monthly bills, in exchange for lengthening the payback time with an extended contract – a measure endorsed by regulator Ofgem.

This has been offered by several major energy firms to businesses this winter, with businesses not benefitting from the protection of a price cap like households – instead required to sign long term contracts.

With government support for businesses heavily capped this winter, firms are feeling squeezed in their bid to kept the lights on and buildings warm over the coldest months of the year.

Millions of businesses sign energy deals through third party arrangers – known as brokers – who advise clients on the best deals.

FSB argued that it was unfair to exempt them from options to discount options – with the group’s small business index showing bills rose between the second and third quarter this year.

As it stands, over 57 per cent of small firms are citing utilities as a key cause of changes in business cost.

McTague said: “Although the wholesale energy prices have gone down from the market peak we saw last year, many small businesses are still trapped in the fixed energy contracts they signed last year and this winter’s bills could be as high as the last.”

This follows Ofgem writing an open letter to business energy suppliers yesterday, urging firms to treat customers fairly this winter.

Ofgem has demanded suppliers do not overcharge firms on so-called ‘deemed rates’, the costs a business pays when it moves to a new premises but before a contract has been agreed.

However, Ofgem is currently not able to regulate brokers, and is unable to require energy firms treat brokered contracts equally to conventional deals, such as with blend and extend deals.

It has instead pushed the government to consider further protections for businesses.

Nevertheless, industry body UK Hospitality has welcomed Ofgem’s public push against poor practice in the energy industry.

Chief executive Kate Nicholls revealed the group has been raising “the reckless behaviour of some energy suppliers with government.”

She told City A.M.: “The eye watering levels of pricing we saw on deemed rates, often for new businesses, were extremely damaging to the hospitality sector and so we are pleased to see that Ofgem has recognised this and is acting. Energy companies must be held to account, and we continue to call for Ofgem’s recommendations to be implemented urgently to ensure the market is future-proofed.

When approached for comment, a Department for Energy Security and Net Zero spokesperson said: “We acted swiftly when energy prices peaked to provide businesses with unprecedented support, saving them £7bn and enabling some to only pay around half of predicted wholesale energy costs.

“Our support is continuing through to 31 March 2024 with our Energy Bills Discount Scheme – allowing eligible organisations to get a discount on their energy bills.”

Trade association Energy UK declined to comment.