Utility Management – The Problem With Commission

Many companies want to know that they can trust their utility management consultant (broker) to be honest, and work hard to get them the best deals for their business. One of the biggest issues within the utility management industry is about how brokers make their fees back from clients.

There are normally three options, but not every broker will offer you all of them:

  • Fee invoiced directly
  • Commission built into your energy contract
  • Combination of the two

There isn’t anything wrong with any of these options as long as you are aware of what you are paying, and the broker is very clear about their charges. Commission can be more favourable to clients as it is often hidden and works off your rates, whereas a fixed fee can appear to be the more expensive option. But don’t be fooled. Brokers who only work on commission are often using this to hide their more expensive charges, meaning you aren’t able to properly compare pricing between brokers and therefore end up over paying for the services.

HOW DOES COMMISSION WORK?

We often get asked how the commission process works as the payment structure is sometimes unclear and these fees can be hidden or confusing. It is vital to understand how the process works before deciding whether you want to pay for your service on commission or on a fixed fee basis. Either way your broker should be clear with you about where their fees are, how the payment works and when you will be expected to pay the charges so you aren’t hit with extra bills. Many people choose commission as they think it will offer them the most cost effective way of paying their energy broker, however fixed fee often works out better and cheaper.

Energy brokers who work only on a commission basis will be being paid by the supplier, this means your energy prices are increased by the commission amount. Your bills will be more expensive than they would be otherwise, and when you pay your supplier, they then pay the broker this uplifted amount. The broker will normally tell the tendering suppliers how much commission they will want added on to the offers and in many cases these uplifts can be very high compared to a fee paid directly to brokers. A number of suppliers won’t question this and do as requested. Some suppliers might query the amount if they think it is too high and others might just have set rates. In the latter two cases there is a risk they will not be allowed to make an offer. The important issue is that the broker might exclude some suppliers from tendering if they aren’t willing to include the requested commission and therefore, you might not be getting the most competitive rates available in the whole market. Paying on commission also stops you from comparing your broker rates to a broker that works on a fixed fee basis. It also means that brokers can increase commission over time without you realising. A fixed fee will remain the same throughout your contract unless a reassessment has been agreed.

If you don’t know how much commission you are paying then you are likely paying too much. By hiding it within your energy rates brokers are able to charge you more than is reasonable for the amount of work involved. The lack of transparency enables the broker to inflate their prices. Small increases can add up to very a large total cost over the whole of your contract period.

Extra transparency is needed when negotiating a contract with a broker on commission as the customer isn’t involved in the process so can’t see what deal has been made between the broker and the supplier, so more questions need to be asked to make sure your deal is competitive and fair.

ARE LONGER ENERGY CONTRACTS MORE COST EFFECTIVE?

Longer contracts are not always the best option. By locking you in to a long term energy deal your broker possibly ties you in to paying high levels of commission and a set rate, rather than taking the opportunity to retender supplies based on the energy market prices which can rise and fall. Therefore, many unscrupulous brokers have an incentive to lock you in to long term contracts even though it is often the least cost effective strategy.

HOW DO I SPOT RED FLAGS?

There are a few things you should think about before deciding on a utility management service, and which payment structure to choose:

  • If the broker isn’t happy to disclose how much commission they are being paid it could be a sign that they are aware the commission is excessive.
  • If you are only presented with a few options and the broker is trying to steer you towards one option, it could mean they have arranged a commission that suits them more than you.
  • Ask the broker to explain how they are being paid and how it could be affected by your contracts. If the broker is vague and not transparent with their fees, it could mean their prices aren’t that competitive
  • If the broker tries to lock you in to an expensive long term contract
  • Always look around and get service prices from different broker companies to make sure you are getting the best deal, and the best service

WHAT SHOULD I ASK MY BROKER TO MAKE SURE I’M NOT OVER PAYING?

  • How much commission am I paying?
  • Can I pay on a fixed fee basis, if not, why?
  • Have any suppliers been excluded because of the commission process?
  • Am I presented with all the offers, or just the ones that will pay the broker the most commission?
  • Is my commission rate the same for all suppliers?
  • Will you outline the amount of commission I am paying before I sign up to the contract?

If you have any more questions for us relating to your utility management please get in touch on 01630 685 144 or [email protected]

More than £40,000 saved in 3 months for a client using our Utility Bureau Service

A hotel chain with properties across the U.K. and Ireland approached CTP for help in reducing their energy bills. As we hadn’t previously worked with the customer, we started by going through all the consumption data to identify areas where reductions could be made. This is all done as part of our Utility Bureau Service, which draws on more than 35 years of experience in the industry to provide clients with all-inclusive and detailed management and monitoring of electricity, gas and water contracts and billing.

We were able to identify several opportunities where cost savings had been missed by the previous consultant. This process was very quick as we started working with the customer very close to their contract renewal date, meaning fast action had to be taken to make sure all the contracts were agreed in time. This was easily achieved and allowed us to help the client avoid very expensive out of contract rates or uncompetitive rollover rates with their previous suppliers.

The savings were broken down into 6 areas:

  • Within the first 3 weeks CTP had launched and concluded four separate tenders for electricity and gas supply contracts, which had a combined annual spend of £1 million. Through this process the client was saved £21,000 which is much higher than the cost of CTP’s services.
  • Health checks were carried out on all of the client’s utility accounts to assess whether any more savings could be made. Within 4 months of being appointed CTP had either identified or achieved a further annual saving of over £23,000 for the client.
  • £9,400 of possible annual savings were identified through supply capacity optimisation.
  • Poor heating controls were discovered at four of the chain’s hotels. Bringing in improved energy management techniques at these locations would save the client over £9,000.
  • CTP worked to renegotiate the electricity meter operator contract. This change will save the client £2,800 over the contract period, in comparison to the previous rates.
  • Finally, we were able to identify £780 per year of savings from potentially erroneous ‘poor power factor’ charges.

The savings we identified will not only save the client money year on year, but will also cover the cost of our services. We estimate it will take less than 20 weeks for the client to recover the cost of using our services including bill validation, ongoing monitoring and reporting.

This is just one example of how CTP can work to streamline a company’s energy bills, and provide a fully rounded management service that delivers the best possible prices for clients.

Why Clifford Talbot Partnership isn’t your typical energy broker

Are you looking to save your business money on energy bills? Well look no further than Clifford Talbot Partnership. By choosing us as your energy broker you’ll get top quality customer service, unbeatable prices and over 35 years of experience working in the UK and Irish markets. We were also one of the first companies to offer online Half Hour electrical energy usage data and analysis for our clients, back in the late 1990s. We’ve continued to lead the way with innovation in this area ever since.

One of the most important things for us is transparency. We value accuracy and honesty in every step of the process. As we are a fully independent organisation, unlike most utility brokers, we don’t receive any hidden commissions from our suppliers. This means we won’t pass on any unexpected and hidden charges to our customers. This isn’t always the case with most other utility and energy intermediaries, such as consultancies and brokers, who may recover their costs from a supplier commissions by inflating your energy or water bills.

Clifford Talbot offer an end to end energy management solution from Procurement right through to Bill Validation, so we can be confident we are paying the most competitive rates and our billing is accurate ”, says Dave Owen the Environmental and Purchasing Manager at Brayford Plastics. “Letting Clifford Talbot procure our Energy on our behalf and at the most competitive rates, has meant we can concentrate our efforts solely on running our business effectively.”

We work with both large and small organisations, so no matter the size of your company we will provide the best possible service. Our portfolio includes offices, retail parks and shopping centres, hotels, manufacturing businesses, tourist attractions, breweries and pub chains, health trusts, universities and many more. This means we have a broad understanding of all aspects involved in the utility markets and have experience handling clients with multiple sites and complex property portfolios.

CTP offers a fully comprehensive utility or energy management service, however, if this approach doesn’t work for you we also offer a fully bespoke service. Our teams will work alongside you to create a custom plan designed just for your business and what’s most important to you. The satisfaction of our clients is of vital importance to us so we use a multi-step process to ensure any issues you might have are addressed swiftly and completely. Leaving you in no doubt that we are providing you with the best possible service.

Marc Nunn, Associate Director at Savills says “I can’t recommend them highly enough.

For more information about the service we provide please visit our website https://www.cliffordtalbot.co.uk or contact Steve Clifford on 01630 685 144 or 07929 345764.