Regulation for business energy brokers can’t come soon enough
British businesses are losing almost £1.4m every day on expensive energy contracts that in many cases simply shouldn’t exist.
Energy brokers aren’t regulated… and it really shows.
Back in 2015, the Competition Markets Authority published research showing that, every year, UK SMEs contracting with the Big 6 Energy Suppliers are losing out on £500m collectively because they’re paying more than they should for their energy
That’s almost £1.4m every day lost to unnecessary energy costs.
Across the whole of the UK energy supplier market that number could be even higher.
And a lot of that overspend is down to the work of aggressive and unscrupulous energy brokers.
Energy brokers aren’t regulated
We’re not saying all energy brokers are bad. Some are good… but the truth is, it’s hard for ordinary business owners and workers to tell the difference.
● Energy brokers don’t need a license to set up their operations
● They don’t need to register with Ofgem
● They don’t have to follow a code of conduct and there is no official training programme
● There are no barriers to entry at all.
In short, energy brokers are completely unregulated and their customers have very little recourse when things go wrong.
How some energy brokers are hurting British businesses
1. Lack of transparency
As a business consumer you would imagine your energy broker accesses the whole of the supplier market to find the best price for you, but this is very often not the case. Energy brokers don’t tell you this, but they often push their customers towards their preferred energy suppliers, putting their own commercial outcomes ahead of yours.
A very common practice in the supplier/broker relationship sees the energy broker accept a sales target and a bulk advance on commission payments from a supplier up front. Depending on the size of the brokerage, that sales commission can be in the millions of pounds. The broker then has to hit the sales target in order to avoid paying back the commission.
Do you think this means their customers get the fairest deal for their energy?
Of course not. Energy brokers push their customers towards their preferred suppliers, whether they’re the cheapest option for the customer or not.
So when an energy broker tells you that they search the whole energy market to get you the best price, beware: they haven’t.
In fact, the Business Protection from Misleading Marketing Act, a weapon that Ofgem can wield, means they are not allowed to use phrases like ‘best’ price or ‘we search the whole of the market’ unless they can definitively prove that is the case… so the next time you see these phrases in energy broker marketing, ask for proof that they actually deliver.
2. Dishonest pricing
The most unscrupulous energy brokers out there often tell their customers that their service is free to use.
A report commissioned by Ofgem stated that only 5% of businesses that have used a broker said they were charged for the broker’s services.
But energy brokers aren’t charitable organisations. They’re businesses operating in a highly competitive industry.
They’re not here to give you a hand-out or a leg up.
Their services are not free.
Energy brokers typically add their service fees and sales commission to your pence per kWh unit rate; the uplift can be anywhere from 8% to 100%. It’s added to your unit rate, so you carry that cost for the duration of the energy contract. You end up paying your energy broker every time you turn on your office lights or put your heating on.
This is particularly prevalent in the micro business market. OFfgem’s ‘State of the Market Report 2019’ stated that the average prices paid by micro businesses are disproportionately higher than those paid by other businesses.
In Q1 2019, micro businesses paid on average a price for gas supply that was nearly twice as high, and an electricity price that was around 30% higher than the average across all business customer segments.
This is largely down to broker behaviour.
And, because they aren’t regulated, energy brokers don’t have to tell you about it at all.
3. Poor customer service and complaints processes
So you’ve used an energy broker and now you’re on the hook for really expensive gas and electricity for the next three years. You’ve got questions about your energy contract and you’re thinking about making a complaint.
Where do you turn?
You could try calling the energy broker to complain, but your energy broker is a salesperson, not a customer service expert. And their commission is already in the bank. They’re not going to help you out.
If you’re lucky, they work for a brokerage that operates a customer services team. They might even have a complaints process. But they probably won’t, because most brokerages are small operations focused almost entirely on sales.
And at the end of the day, energy brokers aren’t regulated. They don’t have to help you out with any of your questions.
The real cost of bad broker service
All of this amounts to an energy broker industry that almost seems structured to harm British businesses and often rewards behaviour that wouldn’t be acceptable in other industries.
This affects other businesses, too. The public sector, including NHS hospitals and schools, can all fall victim to these broker tricks. Charities can also be exposed to some of the worst broker excesses.
The ‘Micro and Small Business Engagement in Energy Markets’ paper (prepared for Ofgem by BMG Research Ltd) states that only 18% of businesses describe their experience with brokers as ‘positive’, yet nearly 50% of all businesses use them. There is a need for a fair and effective market.
But the energy broker market isn’t fair. And it isn’t working as hard as it could for businesses.
That’s why we’re calling for regulation of the energy broker industry… sooner rather than later.
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