Tim Hipperson, Director at Business Energy Claims
Energy brokers are there to help businesses search the often confusing and crowded energy supply market to find business energy contracts from suppliers on behalf of the customer.
However, a lack of regulation by Ofgem and a dramatic increase in the number of brokers has led to UK businesses being owed hundreds of millions of pounds due to miss-sold utility contracts.
Brokers have various ways in which they charge businesses for their services but often the method, amount, or even the fact they are charging are not transparent, and this is why many businesses are either unclear about what they’ve been charged. In fact, a recent report prepared for Ofgem1 said only five per cent of micro and small businesses believed they were charged anything for the services of a broker.
Business energy mis-selling: what you need to know
First and foremost, any type of business could have been affected by business energy mis-selling; from a sole trader to a large corporate.
Energy mis-selling by brokers is far more common than most people realise. To demonstrate the scale of the issue; there are approximately 3,000 energy brokers in the UK, but less than 10 per cent have registered for self-regulation, in which brokers follow a strict code of practice to ensure transparency with their consumers.
Whilst some brokers do charge upfront payments for their services, or are transparent about their fees, the vast majority use a commission model which can often lead to the customer’s energy spend being almost doubled due to the amount uplifted by the broker.
The problem is that in many cases the level of commission, the existence or commission, and/or how that commission affects the price customers pay, is not disclosed. Indeed, the fact that the rate charged to the customer can often be determined by the broker and the amount charged is something the customer rarely learns
In some cases, businesses will have achieved a saving on their previous contract where they’ve used a broker. However, this does not mean that they weren’t mis-sold to.
For example, if a business was already paying too much for energy (perhaps they were on out of contract rates), it would be very easy for a broker to undercut the existing price and provide a saving, whilst leaving a lot of room for their own commission.
The most common way for energy brokers to earn their commission is by applying an ‘uplift’ to the energy supplier’s unit price, which is not disclosed to the customer.
The different types of mis-selling
There are a wide range of practices currently used by a number of energy brokers that are, at best, misleading and, at worst, fraudulent; many are centred around energy brokers acting in their own best interests, rather than their clients’ best interests
The Citizens Advice Bureau has identified eight separate practices2 which are detrimental to businesses. However, the three that occur most often and/or cause the most damage are:
Mis-selling: selling consumers unsuitable contracts, presenting something as the “best deal” or the “best price” based on the broker’s commission, or contracts that do not meet their needs such as proposing a long term fixed deal. 2
Lack of transparency: not clearly presenting fees/charges or specifying how much of the market was searched to find a price, therefore consumers may not be offered the best deal. 2
Misrepresentation: failing to identify themselves as an intermediary by suggesting that they are calling from a supplier in order to get businesses to switch contracts or agree longer contracts. 2
How do businesses know if they have been affected?
There are certain hallmarks of business energy mis-selling, many of which organisations are not aware of.
As a starting point, if a business is not aware of a fee or invoice being paid specifically for the use of its broker’s services within the last six years, there are grounds for believing that the customer may have been mis-sold to and are therefore eligible to make a business energy claim.
Why is the issue being raised now? What’s changed?
The energy market has changed significantly over recent years with lots of new entrants and, whilst this should drive innovation and competition, it has instead led to more creative mis-selling and a “greedy” industry.
In 2014, Ofgem introduced proposals to regulate energy brokers to protect businesses from such issues but this failed to materialise. The market is unregulated and intermediated, with hundreds of new brokers opening in the last few years.
There are very few barriers for new brokers looking to enter the market and a lot of money to be made, so it’s easy to see how mis-selling has continued to be a growing issue. The current position is that brokers will remain unregulated for the foreseeable future.
It is important for businesses to educate themselves on what makes a good broker and how to spot potential signs of mis-selling. If a business has used an energy broker in the last six years and is unsure whether or not they have been mis-sold to, there are now measures in place to allow them to make a claim – in some cases, they could be owed hundreds of thousands.
1 Micro and Small Business Engagement in Energy Markets. Prepared for: Ofgem. Prepared by: BMG Research Ltd, March 2015. https://www.ofgem.gov.uk/publications-and-updates/micro-and-small-business-engagement-energy-market-2015-quantitative-research-report
2 Citizens Advice policy on non-domestic Third Party Intermediaries (TPIs), 2017. https://www.citizensadvice.org.uk/about-us/policy/policy-research-topics/energy-policy-research-and-consultation-responses/energy-policy-research/citizens-advice-policy-on-non-domestic-third-party-intermediaries-tpis/