13 things bursars and Heads really need to know
SPONSORED: James Robson, Chairman of Powerful Allies, shares the key points to be aware of prior to opening up discussions with an energy broker
1 The energy sector is effectively unregulated, with OFGEM playing no useful role in overseeing commercial energy contracts. Buyer must beware.
2 Brokers receive commission in the form of ‘uplift’ which is included in the energy unit rate. There is no limit to the uplift applied, and many brokers simply charge what they can get away with. There is no approved or standard level of uplift. (Powerful Allies have strict limits on this, and always warrant uplift levels.)
3 Uplift is not shown on the supplier’s energy contract, so it is virtually impossible for a client to check this. Suppliers will not release this information.
4 Some very well-known suppliers allow brokers to inflate standing charges to vastly increase their profit. This is particularly prevalent with gas contracts, and it allows brokers to present low unit rates, which clients usually use as a benchmark, whilst maximising revenue. (Powerful Allies never inflate standing or any other charges.)
5 Several well-known brokers routinely make more profit from standing charges on gas contracts than they do with uplift.
6 In order to ensure they win more contracts, some suppliers pay brokers huge lump sums in commission in advance of contracts, and most offer incentives. Indeed, some brokers would not survive without such prepayments. (Powerful Allies declines special incentives or prepayment offers.)
7 Because energy suppliers have no real product differentiation, they will seek to present their offers as being more competitive by omitting certain charges and tariffs. Many brokers do likewise. (Powerful Allies comparisons are always fixed and fully inclusive.)
8 Some suppliers and brokers like to promote ‘pass through’ contracts where the price quoted only includes the energy part of the bill, leaving customers exposed to all the other variable (and generally increasing) distribution and other costs. (Powerful Allies never use ‘pass through’ contracts.)
9 Often, unscrupulous brokers will fabricate costs, distort competitors’ offers and use PDF files to hide true costs in their comparisons. It is not uncommon to see cost increases presented as a negative saving; a concept unique to energy brokers we believe!
10 Suppliers and brokers often pressurise clients into placing longer contracts than are wise, to block out competitors and maximise sales commission; long-term electricity contracts include extra cost to cover risk, and for large users it is rarely sensible to contract beyond two years for electricity. (Powerful Allies presents all options and allows the client to decide.)
11 Brokers will give a false deadline for signing a contract because they are paid on commission targets; the market is always there and today’s price will not usually change significantly tomorrow. (Powerful Allies allows managers the time to obtain approval for these long-term and important contracts.)
12 If a broker charges fees for their work, it is often assumed that is the full extent of their income. Unless specifically excluded in a contract capable of audit, fee-charging brokers often also receive undeclared uplift. (Powerful Allies never charges fees.)
13 Particularly in this sector, if a broker’s prices look too good to be true, they will be.