Government to directly regulate TPIs

Industry response: Broad support for direct regulation, but no preferred model

DESNZ received responses from across the industry, including from suppliers, TPIs, the wider market and consumers. Overall, responses to the consultation supported the direct regulation of the TPI market. However, respondents’ views were split on the preferred TPI regulation model. Respondents were most supportive of general and specific authorisation models. Under both models, a regulator and the Government would be the responsible entities, and TPIs (not the supplier) would be accountable for their own behaviour. However, the main difference between the general and specific regimes is how TPIs operate in the market. Under a general authorisation regime, TPIs would be able to carry out an activity if they meet a set of conditions. The regulator would be responsible for enforcement activities if a TPI doesn’t meet the conditions. Under a specific authorisation regime, however, TPIs would need to obtain authorisation from the regulator before carrying out the regulated activity.

Transparency and market risks: addressing market concerns

Respondents also put forward views on transparency and risks in the TPI market and future evolution of the market. The Government recognises an increasing role in the market for TPIs. It also recognises their potential to improve consumer engagement and knowledge, increase competition and help businesses to get the best outcomes. However, respondents reported that price transparency in the market has been an issue. Respondents raised concerns about ‘indirect’ payment methods and issues with commissions hidden within broader charges. In response to the consultation, 40% of responses raised risks not covered in the consultation. There were a range of concerns, including worries about how passthrough or flexible/ time-of-use tariff contracts could complicate or hide costs for consumers.

Market implications

In terms of market impacts from the proposed changes, respondents expressed a variety of opinions. They noted that regulations should be flexible to adapt to evolving market conditions to encourage innovation. There was a concern that regulations could lead to a reduction in the number of TPIs and that smaller TPIs may need more support. However, some respondents viewed market consolidation as positive, stating that it’s currently oversaturated.

Common ground: principles for a fairer market

There were multiple areas of consensus, including the need for direct regulation, the view that Ofgem should be the appointed regulator, and that a cohesive approach across TPI and supplier regulations could improve consumer outcomes. Respondents agreed that overarching principles of transparency, fairness, training, governance and compliance were appropriate.

Next Steps for Government and Ofgem

In response, the Government published the outcome to the consultation and set out its next steps. It’ll legislate to appoint Ofgem as the TPI regulator when there’s time in the parliamentary schedule. In parallel, Ofgem will undertake a market survey to prepare it for taking on regulatory authority of the TPI market and will develop principles, rules and registration requirements for TPIs to operate in the energy market. Once Ofgem is appointed and has implemented its registration process, TPIs will have 12-18 months to register. If they fail to register in this timeframe, they’ll have to stop arranging energy supply contracts on behalf of energy consumers.

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