Find Out Exactly How Much You Are Paying in Commission to Your Energy Broker
Most companies choose to trust the procurement and management of their utility contracts to Third Party Intermediaries (TPIs) or energy brokers. It’s something of a no-brainer, as purchasing directly from energy suppliers almost always results in higher charges.
Unfortunately most end users do not understand the way that many energy brokers make their money. Most brokers agree a commission fee with suppliers. This is perfectly understandable and above board.
What companies don’t understand is that they pay for that commission. The suppliers do not cover it. It’s crucial that you understand this, if you have an energy broker or are considering appointing one.
You need to appreciate not only that you are paying the commission but also how much that commission is. If you have this information you can ensure that you’re getting a service that’s value for money. Unfortunately most companies do not have this information, and it is a problem.
How Does Commission Work?
When you entrust an energy broker with procuring your utilities contracts they negotiate those contracts with suppliers. A key part of the negotiation is setting an agreement of the broker’s commission fee. That fee is expressed as an amount per unit of energy, usually in pence per kWh. The more energy you use the greater the amount that your broker is paid.
The energy suppliers do not cover the commission, as many businesses mistakenly believe. Instead, the fee per kWh is added to the cost per unit that the suppliers charge the business itself. There is nothing underhand about this, but there is one major problem. That is that the fee is not detailed on any utility bill.
Many businesses assume they are not paying a commission, as it does not appear on a bill. Those firms who do understand that it is they who cover the commission have no immediate way to find out how much they pay. Plenty of brokers who charge in this way are entirely reputable and trustworthy. Unfortunately some are not, and take advantage of this situation to exploit their customers.
The Office of Gas and Electricity Markets (Ofgem), a UK Government regulatory body, is aware that this is an issue that needs to be addressed. As this article from 2014 highlights, Ofgem have tabled recommendations, including a code of practice, for suppliers and brokers to protect businesses from miss-selling.
Unfortunately legislation is still pending, which means your business could be spending more than it should on electricity bills. If you need to find out how much commission you’re paying to your current energy broker we suggest you follow the steps outlined below.
Finding Out Exactly How Much Commission You Pay
Rather than asking your broker how much they are being paid, we recommend that you contact your energy suppliers. You can find out from them what commission and incentives were involved in the negotiation of your utility contracts. That way, you have all the information you need to properly assess the service that your broker is providing you. Getting that information from your suppliers is as simple as following these three steps:
- Contact your broker and ask them to complete and sign this template
Once it is signed, this form gives your energy suppliers permission to disclose commission and incentive information directly to you. Your broker should feel obliged to sign this template if you request it. If they refused to sign you would have to ask yourself why.
- Send the completed template to your suppliers, using this draft email/letter
So that you know what to request from your suppliers we created this draft letter/email for you. You will need to insert a few pieces of relevant information to the template, including relevant names and account numbers. The letter asks the suppliers to provide the information you need to find out how much commission you’re paying.
- Calculate the annual commission you pay
The response you receive will notify you of the commission fee attached to your contract. That fee will likely be expressed as an amount per energy unit (i.e. pence per kWh). You can use this information to calculate how much commission you are paying over the course of a year.
If you know your exact annual energy consumption in kWh, all you need to do is multiply that figure by the commission fee. If you don’t have that information, contact us and we can provide you with an accurate estimate. All we’ll need is some simple information, like your annual energy expenditure.
Issues Associated With Commission
When you have calculated your commission payments you need to decide if you are getting value for money. If your broker operates on commission, you need to be evaluating if they offered you impartial advice. There are several considerations to keep in mind when assessing your broker’s impartiality:
Choice of Suppliers
You need to trust that your broker has chosen the energy suppliers that are right for you. Their choice should consider your company’s energy uses and needs, not which suppliers pay them the most commission. It’s crucial that certain suppliers are not excluded because they won’t meet a broker’s desired commission rate.
Contract Length
Locking a company into a long-term contract can be good for an energy broker. A three-year contract means three years’ worth of commission. Even if a company changes broker before the contract ends, the original broker continues to get their commission for the full term. You must be sure that contract lengths negotiated by your broker have your interests and not theirs as their motivation.
Comparative Savings
Even if one supplier’s base rate is comparatively lower than a competitors, that won’t matter to you if they pay your broker a higher rate of commission. You need to consider how much of any saving gets passed on to you and how much goes to your broker.
Greed & Sharp Practice
Failing to be transparent about commission rates can be a sign of more serious misdemeanours by an energy broker. If a company is unaware of the commission they’re paying, greed on the broker’s part could lead them to impose an unfairly high rate.
A small increase in the rate of commission can lead to huge costs for a business in the long term. It is only by knowing exactly what you pay that you can ensure you’re getting a fair deal.
Our Professional Approach
Clifford Talbot Partnership takes a transparent approach to energy and utility management. We recognise and understand the issues attached to commission and how they can impact the recommendations a broker makes.
Consequently, we prefer to operate on a fixed fee basis, with our charges agreed upon up-front and paid direct by our customers. If a customer does want us to charge via commission we can still do so. When working that way, we will always be clear about the rate we charge and what a customer gets for their money. That transparency means you can be confident that we will always treat you fairly.
Our impartiality is assured as no customer is ever kept in the dark about our charges. Our only considerations when negotiating contracts are the best interests of our customers. That’s also why we provide a Full Utility Bureau Service not just procurement. We provide bill validation, dispute resolution and many other key features. All of which come under the supervision of a dedicated account manager
Download our handy templates today to find out how much commission you’re paying. We’re happy to provide you with impartial advice on the commissions your current broker is charging you.
Steve Clifford is Owner of Clifford Talbot Partnership which was formed in 1984 to provide solutions to energy and utility management issues in commerce, industry, government and the public sectors throughout the UK.
