Business Energy Claims
Energy brokers and third-party intermediaries (TPIs) have been offering to ‘help’ businesses for years with their energy contracts. They should act in the best interests of the client when renewing or transferring a business’s energy contracts, but that is not always the case. Many TPIs fail to disclose commissions they receive or provide deceptive statements about how they are paid.
TPIs are remunerated by way of a commission. The energy company will apply an uplift to the client’s unit price. These uplifts form the basis of the TPIs commission and, as it is an uplift on the energy company’s base price, the commission is passed through to the client. It is therefore the client paying the commission unknowingly rather than the energy company.
It has been estimated that 80% of the 6 million businesses in the UK have used an energy broker. This would equate to 4.8 million businesses.
The majority of the companies have used an energy broker on at least two separate occasions for both their gas and electricity supply. Thereby equating to around 10 million possible claims.
To date UK energy brokers are still unregulated and
this is the cause of the problem.
Ofgem have afforded customers little by way of regulatory protection leading to a mis-selling epidemic. Due to the lack of regulatory protection, energy brokers enticed clients to enter energy contracts that were not always in their best interests.
Energy brokers also use aggregators (aggregators are agents of energy suppliers) who provide a price comparison to facilitate a quotation for the client. The energy broker provides information to the aggregator, who then provides the energy broker with several quotes obtained directly from the energy suppliers. However, not all energy brokers will provide the client with a full list of quotes; instead, they will cherry pick those quotes from the suppliers that they have a relationship with and from which they receive favourable rates of commission. It is understood that aggregators often receive between 12.5% and 25% of the commissions built into the contracts. The energy company pays the commission to the aggregator, who will then deduct their share and forward the difference to the energy broker.
The normal ‘process’
This would entail the energy broker cold calling the client. They would engage with the client and offer to get them the best possible rate on their energy contracts. They would then arrange for the client to sign a soft and/or hard letter of authority (LOA).
The soft LOA permits the energy broker to access information about the client’s pricing history, usage and meter details. It also allows them to provide quotations to the client. The energy broker will then perform a credit check on the client.
The hard LOA grants the energy broker authority to process and set up the contract on behalf of the client. If this happens the energy broker will sign up the client without the client seeing the energy supplier’s contract and/or terms and conditions. So even if reference is made to commission this will be ‘after the event’ once the client has already entered the contract and can’t get out without incurring extortionate exit fees.
Is there support from the regulator?
On the 31 May 2021 the Guardian Newspaper reported that: “The UK energy regulator will force ‘unscrupulous’ energy brokers to come clean about the true cost of their deals by revealing their hidden commission fees to help protect more than a million microbusinesses from being ripped off...
The regulator is setting out the measures almost 18 months after it was made aware that some energy brokers may have overcharged ultra-small companies by up to £2bn by hiding their commission fees. Microbusinesses, which include sports clubs and public bodies, spend a total of about £25bn to cover their energy bills every year of which almost two thirds is bought through energy brokers. Unlike brokers selling mortgage or insurance deals, the energy middlemen are largely unregulated. Ofgem’s investigation into “unscrupulous brokers”, which launched last summer, found that in one case, energy broker fees made up to 50% of the total cost of the energy deal, or about £24,000. The customer was not aware of the hidden fee, it said...”.
In its “Notice of Statutory Consultation" on a proposal to modify the standard conditions of all gas supply license, It states::
"We are proposing these modifications to address a number of key harms faced by microbusinesses in the retail energy market. We intend to clarify and strengthen existing supply license obligations to provide information about brokerage costs on contractual documentation”, in respect of the new proposed condition”. And goes on to state: (A clarification of brokerage fees)
"Any fees, commission or other consideration including a benefit of any kind, processed by the licensee and paid or made to the Broker in respect of a Micro Business Consumer Contract; and includes an amendment of ‘Principal Term’ to include “...and any other term that may reasonably be considered to significantly affect the evaluation by the Customer of the Contract under which electricity may be supplied to a premises including for the avoidance of doubt, in relation to Micro Business Consumers any Brokerage Costs, required to be paid or due to be paid in respect of the full duration of a Microbusiness Consumer Contract and to presented as monies (whether actual or where that is not possible, estimated amounts)” And it then states: (duty to disclose fees)
"Before the licensee enters a Micro Business Consumer Contract, it must bring, or ensure that the relevant energy broker brings, the information in relation to fees received to the attention of the Micro Business Consumer and ensures that the information is communicated in plain and intelligible language... the Principal Terms of the proposed Contract”.
Legal Principles -
Is there a legal precedent?
Yes, there is a recent Court of Appeal decision of Woods v Commercial First Business Ltd [2021]. The outcome of this Judgement allows for the same principles to apply in that the Energy Broker would have owed the Claimant a duty to provide information, advice or recommendation on an impartial or disinterested basis. The relationship therefore is such that the payment of a secret commission exposes both the energy broker and the energy company to the applicable civil remedies.
For the avoidance of doubt it is not necessary for a client to establish an agency relationship with the energy broker to bring a claim.