Small businesses: Five things to ask your energy broker

Andrew Richardson: Ask brokers how your price is determined and by whom

Former Utilitywise director Andrew Richardson manages an energy price comparison and switching platform for small firms. For businesses that still use brokers, he suggests they ask the following questions before signing anything.

A significant proportion of businesses use a broker to procure their business energy. Brokers can typically mark-up supplier base rates by up to 30%.

Here are some questions you should ask your broker to ensure they are doing the best by you, their customer:

1.What are the broker’s fees?

This helps define how the broker is getting remunerated for his/her services.
Are they getting a lump sum, or the combination of a lump sum and commission in rates?  Are there any performance targets and incentives included? We recommend clients seek permission to confirm any commissions with the supplier.

2. How many suppliers will the broker work with?

A broker may well tell you they work with the whole of the market, but there are so many various kinds of suppliers – green, clean, micro suppliers, energy direct from the grid, that it isn’t possible. It’s disingenuous for brokers to claim they work with the whole of the market.

3. Does the broker have a direct relationship with suppliers?

Many brokers do not have a direct relationship with the supplier and use intermediaries. In the chain of connection between the business and the final rate they get, there can typically be various sub-brokers marking up rates and fees. The result is you get an inflated bill on what the supplier may have originally charged.

You also need to be prepared to question the broker’s relationship with the supplier. This will help determine if they have preferred supplier relationships. How do they select the supplier – is it purely on rate alone or do they have preferential deals? Or are the intermediaries involved pushing you towards particular suppliers due to rewards they get?

4. If the relationship is not direct, how many parties are involved in making up your price?

This will help establish who is involved in the chain of relationship with the supplier. How far away is the broker that is contacting you from the original source price provided by the supplier? And how much is/are the middle men making who are part of the chain? It’s not a rhetorical question – businesses need to be pushing these questions and finding out who is making money on their price. Again, ask for full disclosure of all commissions.

5. Get a full breakdown in writing 

Always ask in writing for a breakdown of what is included and not included in the tariff especially regarding passthroughs to ensure you are comparing like for like.

The main things you need to remind yourself of before the call are:

  • Broker’s services are not free
  • Nobody can possibly cover the whole of the market
  • Only suppliers can give you the very best price and a good intermediary should guide you to the best prices.

Former Utilitywise finance director Andrew Richardson launched Troo last year. It is a benchmarking and switching platform for small businesses. Richardson says it does not uplift suppliers’ kilowatt hour rates and discloses the same flat fee it is paid by all suppliers should customers decide to switch.

The firm has flagged further scams that may be attempted by TPIs and brokers – such as pretending to be a supplier, or abusing letters of authority to lock businesses into long-term inflated contracts – here.

Related stories:

Going for brokers: Three firms bidding to disrupt procurement

Regulate TPIs and implement price caps for small firms, urges FSB

Small firms growing tired of constant calls from TPIs

CMA: Small firms ripped off by £500m a year, TPIs must disclose kickbacks

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