Posts Tagged ‘Energy broker’

To no great surprise Ofgem announced that it had abandoned attempts to introduce a code of conduct for energy brokers/consultants, despite several years, numerous consultations and innumerable workshops.

The code was intended to be a set of standards that set a benchmark for high quality consultants acting as intermediaries between non-domestic energy users and suppliers, protecting businesses from unprofessional and misleading tactics. Initial plans from Ofgem indicating that suppliers would only be able to work with consultants who had signed up to the code of practice have now been scrapped.

Ofgem reported that they found inconclusive evidence of consultant malpractice, so has postponed further work on the code and instead said that consultants should take on voluntary principles to treat businesses fairly.

Things to be aware of when working with a consultant…

  • some consultants may represent a single or small group of suppliers rather than the whole market
  • you’re not obliged to accept an offer from a consultant: ensure you understand their services, fees and T&Cs before accepting
  • make sure you’re comparing like-for-like: supplier and consultant price offers may not be presented in the same way, some charges may be pass-though and therefore vary during the contract lifetime, while others are fixed

Questions for your consultant…

  • how many suppliers will be approached for prices?
  • what will you do to help switch supplier?
  • what other services are included during the life of the contract?
  • how do you charge for your services – a direct fee or an indirect commission?

Although Ofgem doesn’t licence consultants, they must comply with consumer protection legislation such as the Business Protection from Misleading Marketing Regulations (BPMMRs) – and since November 2013 Ofgem has the power to apply to the courts for an injunction to prevent breaches of the BPMMRs.

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The Competition and Markets Authority (CMA) recently proposed a number of measures designed to increase competition and reduce energy costs for small businesses, including…

  • ending automatic rollover contracts
  • enabling rival suppliers and energy brokers to access customer details so they can target them with cheaper energy offers
  • moving all small businesses to half-hourly settlements
  • requiring suppliers to publish all tariffs on their website to increase transparency

According to the CMA suppliers make twice the margin on small business customers than they do in the domestic market, and four times the margin compared to larger industrial customers.

It also found that small firms were paying around one-third more on rollover contracts for electricity and about 25% more for gas. Those on out-of-contract or deemed rates are paying at least two-thirds more for both electricity and gas than those on contracted rates.

Half-hourly settlement would improve invoicing accuracy and mean businesses could pay less by using energy outside peak times, although those who have no choice but to use power in the expensive morning and evening peak periods may end up paying more.

It’s not clear if or when the CMA’s proposals will be implemented, but it’s likely that half-hourly settlements will be introduced at some point by Ofgem (already underway for some customers), while pressure on suppliers to improve customer service, transparency and pricing from the CMA, Ofgem and others is set to continue.

 

New research from Cornwall Energy has found that competition in the business energy market is greater than ever before – there are now 39 business electricity and 33 gas suppliers.

Coupled with low wholesale energy markets this should be good news for energy users, with around 24% of electricity consumption now supplied by new market entrants.

The plethora of suppliers and variation of tariffs and T&Cs also means the energy landscape is more complex than ever before, however. Ensuring that your understand your contract is important, for instance:

  • is the offer fixed price ie includes charges such as the Renewables Obligation, Feed-in-Tariff etc, or are these excluded from the unit rates and passed through by suppliers in addition to the published unit rate?
  • what happens if your consumption changes significantly – are there volume tolerance penalties that could be invoked if you use more/less than the annual estimated quantity in your contract?

A number of electricity suppliers are now offering innovative products that help avoid or reduce consumption at the most expensive times (generally mid-winter afternoons). As the price of electricity varies depending on when it’s being used, by reducing consumption at peak times you could make substantial savings – but it’s important to understand how suppliers do this and whether it’s appropriate for your operations.

Working with an experienced energy consultant means you can understand fully the various contract and product options and ensure that you gain both the best price but also the service and flexibility you need – so do get in touch.

Ofgem has released a new guide on working with third party intermediaries (TPI) who help companies procure and manage energy. While the document is aimed primarily at micro-businesses, the principles outlined are equally applicable to larger organisations.

Reasons to work with an energy consultant…

  • business energy rates are rarely published and are usually bespoke to each company, making it harder to obtain and compare prices
  • suppliers are under no obligation to supply you – factors including size of supply and credit rating may mean they decline to offer a contract
  • understanding your contracting terms is important as there is usually no cooling-off period
  • contracts may last several years with early termination fees

A good consultant will help address these issues, ensuring your energy contracts meet your specific needs, both operational and financial.

Things to be aware of when working with a consultant…

  • some consultants may only represent a single or small group of suppliers rather than the whole market
  • they may not find the best deal – if you research different suppliers, contract lengths and payment methods better prices may be available
  • you’re not obliged to accept an offer from a TPI – ensure you understand their services, fees and T&Cs before accepting
  • supplier and TPI price offers may not be presented in the same way, some charges may be pass-though and therefore vary during the contract lifetime, while others are fixed; make sure you’re comparing like-for-like

Questions for your consultant…

  • how many suppliers will be approached for prices?
  • what will you do to help switch supplier?
  • what other services are included during the life of the contract?
  • how do you charge for your services – a direct fee or an indirect commission?

Although Ofgem doesn’t licence TPIs, consultants must comply with consumer protection legislation such as the Business Protection from Misleading Marketing Regulations (BPMMRs) – and since November 2013 Ofgem has the power to apply to the courts for an injunction to prevent breaches of the BPMMRs.

Many organisations, understandably, ask several energy consultants/brokers to price their energy contracts to introduce competition and ensure they receive the best price.

What not so many realise is that suppliers asked to quote for a supply by several brokers will give them all the same price: any difference is either down to the level of commission added, or the way the price is presented, for instance, charges such as the Renewables Obligation or Climate Change Levy are excluded, which means you’re not comparing like-with-like.

The end result may still be a good price, but there’s a risk that the lowest price results in the worst service, increasing costs in the longer-term.

A better way to test a prospective (or current) broker is to understand their fee structure, how they’d develop and implement your procurement strategy and what else you receive in terms of additional energy services, and then negotiate the service and fee that works for you. (If they won’t reveal their commission, do the same as you would with any supplier who wants your business but won’t tell you their price.)

While some brokers only provide a basic procurement service, the strong ones will also…

  • Develop a procurement strategy based on an understanding of your business and approach to risk eg fixed or flexible contract
  • Monitor the energy markets to identify the best time to renew, which is usually not just before your renewal date
  • Validate your invoices and resolve supplier queries so you don’t have to
  • Identify energy reduction opportunities and help you realise them
  • Help meet regulatory requirements such as the new Energy Savings Opportunity Scheme (ESOS)

By conducting a through selection process, in the same you would for any professional service, you’ll ensure the correct balance between price and service, while empowering your consultant to negotiate on your behalf with suppliers to obtain the best price.

Energy procurement sounds like it should be a pretty straightforward process, yet there are a number of costly pitfalls that the unwary business can fall into…

1. Don’t wait until you receive your supplier renewal letter: prices fluctuate, so it’s essential to have a long-term strategy that ensures you’re buying when the wholesale energy market is in your favour, not just when your contract terminates.

2. Don’t assume you can get the best price: are you tendering your business to all suppliers, not just the big 6 or your current supplier and a couple of others? With the number of suppliers and complexity of energy products growing all the time, it’s unlikely that most businesses have the time or industry expertise to access the full market and product range, which means you could be missing out on the best product for your business.

3. Don’t forget to monitor your consumption: suppliers price on the basis of predicted demand so its important to understand your energy usage patterns – penalties can also be imposed if you use significantly more or less energy than expected (take or pay clauses), so check those T&Cs as well as your consumption. For businesses implementing energy savings programmes it’s also useful to check that your supply capacity is set at the right level – if it isn’t you could be paying for something you’re not using.

4. Don’t just focus on the unit price: a headline unit price might look competitive, but what about the standing charge, and does it exclude charges such as the Feed-in-Tariff and Renewables Obligation, which other suppliers have incorporated into the unit rate? Commercial energy tariffs are complex, made more so by each supplier presenting their prices differently, so it’s crucial to make sure you’re comparing like-for-like.

5. Don’t assume your energy invoices are correct: billing errors are surprisingly common, yet the complexity of energy tariffs can make it difficult to spot, let alone rectify mistakes. Historic audits can uncover past mistakes, while ongoing invoice validation means you’ll only pay what is due.

 

 

 

Ofgem has continued its crackdown on electricity cost increases, cutting by £2.1 billion the amount five of the UK’s six regional electricity distribution companies can invest in network upgrades over the next eight years. Ofgem refused to authorise £1.4 billion spending, while the companies made £700 million of cuts themselves.

Distribution costs account for around 8% of the average dual fuel bill. The reduction in future investment should see the average consumer bill fall by £12 a year between 2015-2023.

Western Power Distribution plans were approved last November, after they pledged a cut of 11.6% in the distribution element of electricity costs over the period 2015-23.

According to Ofgem, electricity distribution costs have fallen by 39% over the last 25 years, although these falls have been more than outweighed by increases in other non-commodity costs – to the extent that the cost of electricity is set to make-up only 50% of electricity invoices by next year.

 

Another week, another fine for one of the big 6 energy companies.

This time it’s British Gas which has been slapped with a £5.6 million penalty by Ofgem for blocking businesses from switching suppliers.

Due to a failure in British Gas’ computer systems around 5.6% of the objections made by British Gas to business customers wanting to change suppliers were invalid, preventing them in many cases from switching to better value tariffs.

They also failed to inform 1,200 businesses that their contracts were about to end, which meant that these customers, mainly micro-businesses, did not have the opportunity to shop around for better renewal prices, and were forced to continue on the same rates or rolled over onto more expensive standard tariffs.

While all large energy suppliers have now pledged to end auto-rollovers, it’s still important to start looking at your next energy contract well in advance

  • When you contract your energy supply is the biggest factor in the price you pay
  • The wholesale price of energy is at its lowest level for over 2 years, so if your contracts expire in the next 12 months don’t wait for the market to rise
  • Avoid punitive automatic renewal or out-of-contract rates
  • Make sure you have time to check the T&Cs
  • Put yourself in control: starting the process early puts you in charge – you decide what the best contract and best price is for your business

Ofgem’s long-awaited proposals to regulate energy brokers/consultants came a step closer recently with the release of a draft code of practice, which would require :

  • brokers and consultants to be completely transparent about their fees, the contracts they offer and which suppliers they represent.
  • energy suppliers to only work with brokers who have signed up to the new code

The aim is to protect businesses from misselling and drive up standards in the industry. The strongest enforcement element is the requirement for suppliers to only work with accredited brokers/consultants, which ensures that suppliers and brokers are accountable for delivering a high quality of service.

Since November last year Ofgem has had the power to act against brokers who market their services in a misleading way, but the proposed code would increase the protection for businesses.

What does this mean for you?

With the code not due for implementation until later in the year, there are a few important questions to ask that can help ensure you receive a quality, transparent service:

  • Does the broker cover the entire supplier market, or represent only 1-2 suppliers?
  • How do they get paid? No energy broking service is truly free, so ensure you know whether a commission or fee is included in your contract price – and ensure that the fee is the same regardless of supplier

Reputable consultants and brokers already abide by a code of conduct from either the Association of Cost Management Consultants or Utilities Intermediaries Association.

What does this mean for your broker?

It seems likely that the planned code of conduct and supplier accreditation system will see a reduction in the estimated 1,000 brokers and consultants in the UK.

Suppliers may only accredit brokers who can bring them significant energy volumes in order to maintain quality and minimise administration costs; ensuring that 1,000+brokers are adhering to the code could be expensive, particularly if many only place small energy volumes.

The sector may therefore see a period of consolidation, so it’s worth checking now whether your broker is aware of the draft code of conduct and how they plan to comply.

Although Ofgem has new powers to take action against suppliers and energy brokers who missell energy, there are still a number of measures that businesses should take to ensure they’re making the best decisions about their energy contracts:

  • ensure that your broker covers the entire supplier market, not just the ‘big 6’ or a select few suppliers
  • check that they receive a standard commission % or payment regardless of supplier they recommend, and are therefore completely independent
  • know your contract end date: if you go out of contract you’ll usually be put on to punitive rates until you enter another contract
  • don’t just accept your renewal quote: shop around yourself or with the help of an energy consultant, as there are often savings to be made by switching
  • if using an energy broker/consultant ensure they’re a member of one of the industry bodies (eg Association of Cost Management Consultants or Utilities Intermediaries Association), which have strict codes of conduct

Above all, don’t wait until the few weeks before renewal to look at your energy contract; start reviewing the market at least 6 months in advance so you can minimise the risk of volatile and rising prices.