In October of 2022, Ofgem released a statement on their gov.uk domain, saying that ‘Suppliers and brokers must ensure that consumers are fully informed about the nature and costs associated with a contract they are being offered.’ So with these guidelines in place, how is it that an increasing number of business customers of energy suppliers are coming forward to make claims over what they contend to be mis-sold energy tariffs?
The role of energy brokers, which are third party intermediaries – or TPIs – is to act as a link between energy suppliers and consumers in order to assist businesses to find the most competitive energy deals on the market.
The main focus of this article will be the relationship between TPIs and their business customers. Nonetheless, before we explore this relationship in detail, it is important to emphasise that energy brokers are considered, in most cases, to be honest entities that provide assistance to companies seeking competitive energy prices. As a result, transparency becomes increasingly important since it puts businesses’ trust in energy brokers at risk, resulting in mis-sold energy deals and the need to gather energy litigation worth at least several million pounds, considering that approximately £2.25 billion is paid out in commissions every year. It is therefore necessary to take a closer look at how cases are brought about and the role played by TPIs in the problem.
The Role of Energy Brokers
Energy brokers are the ‘middle man’ between energy suppliers and customers. They arrange the purchase of energy services for individuals and businesses, and play an important role in the liberalised markets of the UK.
By looking at the role of energy brokers from a cynical perspective, one can easily conclude that, as some TPIs earn their income through commissions, they may have ulterior motives when selling energy packages. Especially when you consider the fact that Ofgem does not regulate them.
Consequently, unregulated bodies make offers to businesses and dictate prices. In turn, this leaves the door open to brokers whose ethics tend towards malpractice. Recent claim cases have shed light on businesses being misled over the true costs of their energy services, resulting in their financial health suffering, and leading to overall distrust and resentment towards Ofgem and its partners.
Exploring The Lesser-Known Truths Behind Energy Brokers
We have already covered the fact that energy brokers serve as the conduit between businesses and their suppliers, but what actually are these third party intermediaries? Well, they are businesses, too, whether working alone or as a company. Any business is ultimately motivated by profit, and these brokers can advertise their energy tariffs with this in mind.
In order for these TPIs to generate revenue, they often ‘stick a drink’ on their charges, in addition to or instead of charging their customers a direct fee. These additional fees or ‘commissions’ are often undisclosed to customers, and as a result businesses looking to purchase energy are often left without answers as to what they have been charged for.
It is common for brokers not to disclose any details beyond advertising energy plans as the ‘cheapest’, ‘best’, or ‘lowest rates’. In addition, certain tariffs may also be associated with higher commission rates, incentivising brokers to offer businesses higher prices, while promoting them as “competitive,” all to the detriment of the business they are selling to.
To reiterate the point made above, not all TPIs would use such unethical tactics when finding deals for their business clients. However, businesses should always be aware of the potential pitfalls associated with dealing with energy brokers. A good way to compare energy rates is to compare offers from several suppliers directly, instead of depending strictly on a single broker’s endorsement, although this could be a time consuming process, particularly for smaller businesses with less staff.
How Tariffs are Mis-sold
Brokers with poor morals will attempt to entice businesses with grand promises of significant savings. Their sales tactics are designed to convince customers to sign up for their service. However, if they fail to deliver on their promises, businesses can be left grappling with a higher bill than anticipated, which is particularly difficult for small and micro businesses, which often find themselves fighting to remain in business.
Other tactics some brokers employ is mis-guiding their customers on the savings they promise. If a business is already paying high energy prices, a TPI need only offer a minor undercut of the current tariff, regardless of what the real prices or true savings could be. A business might be led to believe they have found a great deal, but in fact they are still paying over the odds.
It is also not uncommon for brokers to hold their customers to ransom by later revealing enormous termination fees if they wish to leave their ‘deal’ and switch to another provider. In certain scenarios, brokers have been reported to enrol businesses in variable rate tariffs without forewarning them about the associated risks. These variable rate tariffs can witness drastic fluctuations, thereby pushing up the business’s costs significantly.
All these tactics are deceptive and may land customers in a financial pitfall which is why, despite their efforts to enforce their own outlines, Ofgem have requested that energy brokers ought to practise transparency with their customers about the true cost of tariffs.
Defending Against Deception: What Can Businesses Do?
There are several preliminary steps businesses can take to protect themselves from misleading practices in the energy sector:
- Empower themselves with knowledge about the various types of energy tariffs and their workings. This helps in understanding the offer on the table and evaluating whether it’s a good deal.
- Be cautious when dealing with energy brokers who offer significant savings. It’s important to remember that many of these brokers may be representing the energy companies’ interests and may have incentives to get you to agree to a pricier tariff.
- Pay close attention to the fine print before committing to any energy contract. In this way, you can be sure that you are fully aware of what you are consenting to and that you will not be surprised by any hidden charges or terms.
- Never hesitate to request more information about an energy offer if you have any doubts or concerns. A reputable company should be transparent and able to address your queries effectively.
Nonetheless, should the above preliminary safeguards fail or not be followed in the first place, businesses have one last option to restore justice by gathering and presenting any evidence of mis-selling in the form of energy litigation, which has become easier and cheaper with the option of bringing a collective action.
As a final word of caution, having examined the underbelly of some of the ‘less than generous’ energy brokers’ worlds, it can be seen how easily deceitful practices can be employed to gain an extra quid or six. Sadly they are out there, and dealing with energy brokers can be precarious at best.
If you recognise the signs of high-pressure sales tactics or suspect an energy broker might be trying to pull the wool over your eyes in regards to their prices or ‘special offers’, just take a step back and consider your options. Be sure to pay attention and make inquiries before proceeding, after all, it is your money and livelihood that are at stake.