10 safety rules for energy buyers, Mark Callaway - Noveus Energy
Amidst the ongoing pitfalls faced by energy buyers, we have written the latest top 10 tips to shed light on critical rules you should follow when appointing an energy consultant. Whilst regulatory efforts evolve at glacial speed to address hidden commissions, we believe transparency is paramount and our tips will provide essential guidance on this and other challenges.
Overall, energy prices have fallen in the last two years but the spread between the best and worst offers can still be very wide. Energy buyers need a consultant who will actively minimise their energy costs and also resolve issues with the energy suppliers as soon as they occur.
1. Use an energy consultant with a good reputation for industry knowledge, transparency, integrity and taking-care of their clients
We’ve put this as #1 on our list. It’s common knowledge that there are large numbers of energy brokers paying their staff sales commissions and solely incentivising them towards contracts with high commissions hidden in the energy price. On the other hand, the client wants a consultant who will work in partnership with their client, actively reduce their energy costs and solve problems with the energy suppliers that inevitably will occur. This is particularly important for larger clients where the savings opportunities are much greater and also the costs of problems are also greater.
2. You should sign a fixed-term contract with your energy consultant/broker/TPI specifying their service and costs
There are two approaches clients can take: a monogamous relationship where they have a contract with their energy consultant. Or an open relationship where the client talks to different brokers when it’s time to renew their energy contract. The “open” model makes is easier to hide high commissions in the energy price and the broker won’t take responsibility for resolving any problems during the life of the contract.
3. Make the choice: pay fees directly to your consultant or agree a transparent commission. Call the supplier and verify the commission
Some energy brokers are still telling clients that they don’t have pay for their services, or alternatively just keeping quiet about how they are being rewarded. In these cases, the broker and supplier are actually adding commission to the prices that the client will eventually pay on their energy bills. As the client, you need to be in control of the amount the broker earns. In a recent example, we quoted a large new client a fair commission and then we discovered that their previous broker was charging five times more in undisclosed commission.
After you’ve agreed the fee or commission with your energy broker you should look to see if that figure is visible in the energy supply contract they ask you to sign. If you can’t see the commission in the offer, then you should call and ask the supplier to verify it. Be very wary if the supplier refuses to verify it. We can think of examples where large clients have found their contracts included higher commission than they agreed to.
4. Watch-out for attractive low fees but hidden extra fees (e.g. share-of-savings) in the small-print. The other potential extra is hidden commission. Make sure have it in writing from the broker and the supplier that there is no commission or other fees if you are paying direct fees to the broker
Unfortunately, we have seen example of large clients agreeing to pay £X directly to their broker and then the broker adding an addition sum (much greater than £X) in undisclosed commission to the energy bills.
5. Do not give anyone the right to sign energy contracts on your behalf or agree to contracts over the phone
Some brokers get clients to sign letters of authority or other arrangements that allow them to collect suppliers’ quotes and accept quotes as well. There are many examples of brokers taking advantage of clients in this way. In the Energy Ombudsman’s 2023 report there is a case-study of a customer complaining about being placed into a contract but losing the complaint because they had agreed to “auto-renewal.”
6. Make sure there are no restrictions at/near the end of the broker’s contract that stop you moving to or talking to another broker or supplier
We have seen brokers using contracts to stop their clients engaging another broker and giving the new broker enough lead time to arrange a new supply contract. We have also seen brokers using letters of authority to tie clients in for a rolling three-year period.
7. Make sure there are no onerous notice clauses or roll-overs
You should always check brokers’ notices clauses and auto-renewals. Anecdotally it feels the issues seem to be most common for public sector frameworks where clients struggle to get away from a framework. There are similar issues with private sector baskets.
8. Be prepared to navigate the energy suppliers’ credit checks
In the last few years energy suppliers have become stricter about credit checks and companies with “poor” accounts and companies in certain sectors will find it more difficult to get offers or only receive offers that require a cash security deposit. You need to work with an energy broker who understands your business and think creatively to maximise the number of competing offers you receive and minimise the costs.
9. Expect a quantitative report of the competitive tender results including a list of the energy suppliers approached and a comparison of their terms and conditions
As a basic service, you expect your energy broker to run a comprehensive tender on your behalf and you will want to see good participation to demonstrate that you are receiving competitive prices. You’ll also want to compare the qualitative aspects of each offer, e.g. might there be any surprises in my bills? unfair terms and conditions? credit results? how “green” is the energy? etc.
10. Make sure the winning supplier is chosen based on the benefit to you. Be extra vigilant if you are asked to join a basket or a framework
As we said earlier, you need to be sure the supplier is paying your broker the commission that you have agreed. It would be terrible if a supplier’s offer was recommended to you because it had a particularly high commission rather than the best price.
If you’ve agreed to join a “basket” of different clients, then you need to be very careful. Firstly, how will a basket or framework benefit you versus buying directly? Secondly, how did the broker pick the basket’s energy supplier (some brokers don’t run a competitive tender)? Thirdly, how can the broker show that the prices you will pay the supplier are competitive? Many members of public sector baskets and frameworks complain there is little clarity about their energy prices.
Make sure you sign a direct individual contract with the energy supplier. If you are offered a different arrangement, then make sure you understand what it is.
Noveus Energy are boutique consultancy only working for a limited number of clients thereby ensuring consistent high-quality delivery. We are 100% committed to fee transparency. We see ourselves as part of your team providing strategic energy advice, support and delivery and leaving you free to run your business. Our reward comes from professional satisfaction and an exceptional high client retention rate.
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