Ofgem has begun an investigation into a non-domestic energy supplier which recently saw one of its directors jailed for 13 years for a number of fraud offences.
The energy regulator is seeking to establish whether Lancashire-based BES Commercial Electricity Ltd and Business Energy Solutions Ltd (BES) are in compliance with rules that ensure deemed rates are not unduly onerous for customers.
Deemed rates are what customers pay if they are not in a contract with a supplier but are using energy. They usually apply when a customer moves into a new business premises, and could also apply if the current contract ends but the supplier continues supplying energy, if the original contract does not state what will happen at the end of a contract or does not have renewal provisions.
Suppliers are obligated to take all reasonable steps to ensure that the terms of deemed contracts are not unduly onerous.
Ofgem stressed that the opening of the investigation does not imply that it has made any findings about non-compliance.
In July this year BES director Andrew Pilley, who also owned Fleetwood Town Football Club, was sentenced to 13 years in prison after being found guilty of fraudulent trading, fraud by false representation and being involved in the acquisition, retention, use or control of the proceeds of fraudulently mis-sold energy contracts.
The trial at Preston Crown Court heard how between 2014 and 2016 sham company structures associated with Business Energy Solutions, BES Commercial Electricity and Commercial Power were used by Pilley and his associates to target small business owners, deceiving them into signing long-term energy contracts.
Pilley was convicted of:
- Two counts of fraudulent trading–including causing or allowing fraudulent mis-selling of energy supply contracts and concealing this from customers and Ofgem and/or the Energy Ombudsman – which led to nine-year and three-year sentences
- Being concerned in an arrangement which facilitates the acquisition, retention, use or control of criminal property by another – namely the proceeds of fraudulently mis-sold energy contracts
- Fraud by false representation based on posts on MondaySavingExpert.com and Ise.co.uk which falsely purported to be made by customers and contained fabricated content – which led to a one-year prison sentence
His sister Michelle Davidson was sentenced to six years in prison and disqualified from being a director for nine years, having been found guilty of:
- Fraudulent trading
- Being concerned in an arrangement which facilitates the acquisition, retention, use or control of criminal property by another
Lee Andrew Qualter – who was director of the telecoms business – was sentenced to seven years in prison and disqualified from being a director for nine years, after being found guilty of:
- Fraudulent trading
The company’s head of regulation and compliance Joel Chapman was sentenced to eight months in prison after being found guilty of:
- Fraud by false representation
Customers were scammed via a telesales operation, described by the judge as “a salesforce of cold-calling liars and manipulators”, which was run by companies that appeared to be independent with Qualter as the sole director, but were actually controlled by Pilley and his sister Davidson, both directors of the BES energy supply companies.
The sales companies targeted small businesses and charities – including guest houses, a children’s cancer charity and companies providing support services for disabled people – as they moved into new premises or when their energy contracts were up for renewal.
Initially a salesperson would lie about the contracts, by giving false or misleading statements about the length and price of the contract as well as competitor rates, to persuade business owners to sign-up.
Customers were then transferred to a different salesperson who would run through terms and conditions and confirm the agreement. This was a binding verbal contract and there was no cooling off period because it was a business-to-business sale.
National Trading Standards said the vast majority of customers did not realise they had been misled at the point of entering into the verbal contract.
The watchdog added that the majority of energy contracts sold by the telesales companies went to the BES companies.
It said: “By 2014, the volume of business which was being placed with BES was 76%, rising to 86% in 2015 – with longer and more valuable contracts going to BES and the less valuable contracts going to other suppliers.
“Between 2010 and 2015, annual turnover in the two BES companies grew from around £15 million to £75 million. By 2019, turnover was over £100 million and combined profits were between £2 million and £12 million.”
During sentencing, Judge Knowles said: “Cold-calling liars and manipulators duped very large numbers of honest and decent proprietors of sandwich shops, hair salons, small hotels and the like into long and expensive contracts for their gas and electricity.
“The bills they had to pay came to tens of millions of pounds…Pilley devised and enforced an elaborate pretence that the sales team were independent of the supply companies. The truth was that he owned them and he called the shots. Michelle Davidson…knew of the pretence and the reasons for it and she let the money pour in.”
Lord Michael Bichard, chair, National Trading Standards, said: “Small business owners were deliberately deceived and locked in to long-term and expensive energy contracts, leaving them struggling to pay the bills and causing many businesses to go under.
“These sentences send a strong message that crime does not pay, even for influential and well-known individuals like Andrew Pilley. It has been a long and complex case and I would like to take this opportunity to thank and congratulate the Trading Standards officers involved for their commitment and perseverance to protect honest customers and safeguard legitimate businesses.”