Business tenancy turnover surge to spark more bad debts

Bad debts resulting from changes of business tenancies, some fraudulent, will increase following the scaling back of government support for non-domestic customers, Energy UK (EUK) has warned Ofgem.

In its submission to the energy regulator’s recently closed call for input on the non-domestic gas and electricity market, the sector’s umbrella body raises concerns that changes of tenancy or occupier (COT) can be a “very significant cause of bad debt” for suppliers.

With increased wholesale prices having already resulted in more changes of tenancies, EUK says: “Non-domestic energy suppliers have expressed concerns that with scaled back support, this will become an increasing problem and that it is anticipated fraudulent COTs will also increase significantly.”

Bad debts can build up because the previous tenant does not notify their supplier that they have vacated the premises and failed to provide a forwarding address or the new occupier doesn’t agree a contract with the supplier.

Changes of tenancy are one of a number of circumstances, which often result in business debt building up, even if high-quality risk management strategies in place, says EUK.

More broadly, the submission warns that the impact of high energy prices is about to get worse for many businesses as financial support is reduced.

From the beginning of this month, the government has significantly scaled back the level of support available for businesses under its new Energy Bills Discount Scheme for non-domestic customers.

EUK says ensuring that businesses know who to speak to if they are struggling’ with their bills is more important now than at any point during the crisis.

However the submission rejects calls for further regulatory intervention into the non-domestic supply of energy on the grounds that Ofgem is already equipped with powers and processes to identify, scrutinise and take enforcement action where necessary.

It says further regulatory interventions could hinder competition in the non-domestic energy supply market by causing unwarranted barriers to entry or limiting the range of products customers can access.

EUK also says there is no justification for Ofgem considering price regulation in non-domestic energy supply.

Any changes to the regulatory framework should not be based “solely on the poor experience of a minority of customers or the shortcomings of an individual energy supplier”, it says, adding that supply licence conditions provide Ofgem with sufficient powers to hold suppliers to account in the event of bad practice, whether on a company-specific or more systemic industry wide basis.

However it says there is a case for looking further into the risks to non-domestic customers due to the absence of robust regulatory oversight of third party intermediaries (TPIs).

The lack of transparency relating to these brokers’ business models and commissions is confusing and can cause harm across the non-domestic market, which could be easily addressed, for example by making it clear that going through a broker will mean paying more than dealing directly with a supplier.

EUK also urges Ofgem to look into TPIs recommending supply contracts without considering their suitability for their customers’ specific needs.

A regulatory framework for TPIs should ensure that such outfits entering and operating in the market can show they have been established and set-up in the appropriate manner.

More broadly the submission says suppliers are seeing signs of the market getting back to normal as stability and confidence return following a period of unprecedented conditions.

The submission proposes that the government considers continued targeted support to businesses in certain sectors during the rest of this year, such as the loans or credit facilities like those deployed during the pandemic

And it urges Ofgem to support the work being done on the development of a government-backed trade credit insurance scheme .

Ofgem’s call for input is informing the regulator’s review of the non-domestic sector, which has been triggered by concerns that such customers have struggled to secure affordable energy tariffs.