7 things to ask (and 3 to avoid) when choosing an energy broker or consultant

January. It’s that time when many of us make changes to tackle the year ahead better than the one just past.

Who you work with as your energy broker may be part of that change this year, especially following Ofgem’s recent guidance about what businesses need to know.

Last August, Cornwall Energy published a review of the way businesses and brokers (or Third Party Intermediaries – TPIs) interact in the energy market. Of the 508 businesses surveyed, more than 70% said they value the help they get from their TPI.

At EDF Energy, we recognise the role that TPIs play in helping us serve our customers.

But the question persists: how can energy managers ensure they choose a TPI that’s right for their business?

If I were an energy manager employing a TPI to help purchase energy for my business, there are some questions I’d ask them at the outset:

1. Are they qualified to deliver the service you need?

Research your TPI. Look past the marketing and try to find out who owns them, who works for them and what relevant experience their key people can offer. Lots of people have energy experience, but relatively few have the experience to effectively deliver specialist tasks your business requires such as advising on complex products and hedging strategies.

2. Are they in it for the long haul?

Ask your TPI how long their average customer relationship lasts, and what techniques they use to attract and retain customers. Seek out testimonials from several of their existing customers to see if they stand by their stated strategies. You want a partner that cares about building long-lasting relationships based on your satisfaction with their service.

3. What exactly are they selling?

Ask to see a Service-Level Agreement (SLA), illustrative contract or similar document that explains what services your TPI is offering, over what period, and lists any associated charges. These charges should reflect the amount of support they provide during your contract.

For instance, a sophisticated service package may require support from various experts across the entire contract lifetime, whereas the basic service could involve one person calling two suppliers and request them to quote as a one-off activity. Also you may not need or want your TPI to handle the entire procurement process for you. Many customers will seek out individual  services such as bill validation.

A transparent agreement at this stage will help you avoid paying for services you won’t use or being locked into a contract term for longer than you’d like to be. Make sure you check there is a reasonable way to exit the arrangement.

4. How do they charge?

Different TPIs charge in different ways. Some charge you a one-off fee directly. Others include their commission in the rate they offer you from the supplier. TPI charges can be fixed (simple) or performance-related which can be complicated. Make sure you know what you’ll be paying and that it represents good value. In a fixed fee arrangement, you should aim to make a saving compared to the renewal quote from your incumbent supplier. For performance related payments, check the benchmark or target is set at a reasonable and market reflective level.

5. How good is their market access?

A TPI that has established and ideally formalised relationships with many suppliers is likely to be in a better position to find you the most suitable arrangement for your needs. Look at the spread of suppliers from which they would present you with offers. Credit availability is sometimes a barrier and it may be that your credit rating limits how many suppliers quote for your business.

Formal TPI / Supplier agreements may provide you with some comfort that your TPI has committed to certain operating standards. For example, EDF Energy’s broker agreements include a signed statement by the TPI that they won’t miss-sell themselves or misrepresent us. The Utilities Intermediaries Association also has a code with similar provisions that TPIs can sign up to voluntarily.

6. How many suppliers do they place business with?

A wide spread indicates that your TPI is willing to search the entire market to satisfy customer requirements. But don’t be put off if the distribution is a bit uneven – if the majority of your TPI’s customers are concentrated around a few key suppliers, that may be because those suppliers are offering the most favourable terms.

7. How will they help you make an informed decision?

Make sure your TPI presents supplier offers in a way that lets you compare like for like – not just on presented price, but also on contract terms and conditions, pros and cons, and so on. You will want your TPI to present prices in a way that includes all likely charges, such as VAT, and they have a method for standardising estimates of difficult to forecast ‘pass through costs’ such as renewable energy incentives.

I’d also be on the lookout for these three warning signs, all of which may be cause for concern:

1. “Free”

Unless the organisation is a registered charity, proceed with caution around anything presented as “free”. More than a third of businesses believe their TPI is providing a free service (Cornwall Energy, August 2013), but the fee will be built in somewhere.

2. “The supplier pays us”

This is a sign that you may be dealing, not with a credible or impartial TPI, but with a sales agent acting on behalf of one or more suppliers. A sales agent’s goal is to earn commission by placing customers with those suppliers, not to find your business the most suitable energy contract.

3. “The EDF Energy logo”

We don’t believe that it is our place to recommend individual TPIs so for this reason we no longer provide testimonials for TPIs. If you see an endorsement from us, it’s not official or it’s old.  We believe it would be wrong of us to potentially bias your decision-making in that way, especially if you’ve already made the decision to appoint a TPI to operate on your behalf.

However, we are happy to confirm whether or not we work with any TPI and whether we are able to provide you with a quote through them. If you’re not sure, just get in touch and ask.

If your TPI is one of the 200 or so with access to EDF Energy, that means we have formalised our relationship and have a broker agreement in place.

That doesn’t mean we police their activities, but we do hold our counterparts to a high standard. My role is to make sure the relationship between TPIs, customers and EDF Energy is fair and sustainable.

If you have any questions at all, or would like to arrange to discuss your requirements with us, just call us and we will be only to happy to help.

Bio

Posted by Graham Frawley, Partnership Accounts Manager

Graham Frawley heads EDF Energy's Partnership Accounts Team. He has extensive experience in creating and delivering customer value for EDF Energy's largest and most complex supply contracts. Graham's team have been at the forefront of industry innovation and are responsible for both public and private sector strategic relationships along with setting strategy for the intermediated market.

Comments

Craig Mackellar
very thought provoking article Graham and I cannot disagree with many of the learned contributors so far. However to inject a further point on this over whether TPI’s are agents or Whole of market operators, where does the supplier sit in this if, for example a supplier takes the decision to be very selective and only work with certain TPI’s, particularly if those TPI’s are deemed “friendly ” to the supplier?
Should there be a compulsion when a code of conduct finally comes in for suppliers to deal direct with all TPI’s that are registered under it? on one side it offers better impartiality to more TPI’s equally it may make the Suppliers relationship with an increased pool of TPI’s more onerous and expensive to manage?
September 02, 2014 at 10:04am
Amanda De Swarte
The TPI should state clearly if they approach all suppliers on behalf of the customer or work with a single or limited set of suppliers. The TPI should as a minimum provide an annual statement of the cost of its services, expressed as meter point costs or as % of spend or as cost per/kWh. This must include full disclosure of any fees/commissions/volume rebates or other financial benefits paid to the TPI by its appointed suppliers at a single customer or customer group level, collected directly or indirectly. Additionally the customer must have the right to receive an annual (or other suitable period) statement from the suppliers appointed by the TPI disclosing any fees/commissions/volume rebates paid to the TPI on behalf of the individual customer or at a group of customers level (if applicable).
March 04, 2014 at 9:52am
David Jutton
The Ofgem code that is out to consultation at present is fine as far as it goes. However, the unanswered questions are the ones that will determine how quickly it can be implemented (or not). The unanswered questions are – who will police it, how and at what cost. To make it a licence condition that a supplier may only quote signatories will effectively make the code mandatory – which is good. Since it remains unclear who the “code holder” will be, Ofgem’s bold statement that it will all be in place by Christmas is wildly optimistic. For the record, our submission (and our input to the working group) made the recommendation that ESTA would be a suitable code holder.

On the question of “hidden fees” suiting certain buyers, we would not be party to one individual claiming to his or her colleagues that our services are free, which manifestly they are not. That said, to pay a consultant through commission rather than directly often suits customers with a central function which includes purchasing energy and other services if the operating units pay for those services through commission. Provided there is no subterfuge about existence or level of fees involved that seems perfectly valid to me.
February 28, 2014 at 1:09pm
Guy Thompson
When I look at the TPI market I am minded of the old adage that “There are none so blind as those who do not wish to see”. Whilst I agree that the whole free lunch brigade leave a bad taste in one’s mouth, it cannot be denied that there are plenty of buyers out there who use the undisclosed (and therefore free)nature of these types of services to justify their use of these services to their internal stakeholders. This “free” model plays well to the lazy and the incompetent. These buyers cannot swing paying money for honest high quality services rendered and so where an up-front fee is being charged they are simply incapable or unwilling to convince others of their worth or the need for the services. In short, true costed consultancy meets too much resistance within the business. There are absolutely buckets of companies out there that somehow think that tendering, re-tendering, market report writing, supplier haggling, objection handling, risk management, bill checking, trading, tariff calculating, credit terms negotiating, tolerance valuation and refinement etc etc etc are jobs that can be done in 10 minutes by a wet-behind-the ears student on an apprentice placement at £3/hour. These businesses will only pay for a Robin Reliant but insist on the delivery of a Rolls Royce. The fact that they think that a Robin Reliant looks like a Rolls Royce shows just how far down the rabbit hole have they plunged.

I am therefore very interested in how the OFGEM code of practice plays out, in whatever guise it arrives. I think that there is the very distinct possibility that once some consumers see how much it actually costs to deliver these “free services” the market will witness a short-term retracement from the TPI sector as a pile of consumers try and do it all themselves. By this I mean that once the cowboys get dragged kicking and screaming into the light; do not believe for one moment that those TPI’s who deliver an appropriate service at a transparent and appropriate price will simply hoover up the fallout. The sort of buyer who went for the free tag did so for a very particular reason; and it rarely had anything to do with that buyer not understanding the whole concept of there being “no such thing as a free lunch”. Much as in politics we get the politicians we deserve; so too in energy consultancy where people have, by and large, got the brokers they deserve.

So this overhaul is long long overdue; and only regulation with real bite will work – not OFGEM’s strong suit so don’t hold your breath. The irony will be that many companies will go from a position of overpaying for, in many cases, professional services of sometimes questionable value, to not paying for any services at all. Which could be another car crash looming on the horizon.
February 24, 2014 at 4:25pm
Rachael Gladwin
The claim “We make no charge to the client for our services” is not just misleading, but duplicitous. Statements such as this one not only damage our (TPI’s)reputation, but devalue our expertise and the contribution we make to the energy sector.Competition encourages innovation and best value for customers and TPI’s play a crucial role in realising this. We should be proud of what we do! Likewise, I see no reason for a TPI to hide the nature of their business or their relationships with a supplier or suppliers. Customers should be able to make an informed choice and that sentiment stands for all representatives within the energy industry.
February 14, 2014 at 2:02pm
Howard Ward
Duncan Sedgewick’s final terse sentence is one I fully support. The pace that Ofgem works at defies belief! His statement that most TPI are honest is true and also worthy of support.

I am less supportive of some of his other statements. It is true that EoN launched their own code of practice in 2012 which was inextricably linked to their own TPI agreement and covers only those TPIs dealing with SME but it is neither sad nor surprising that other suppliers have not joined the EoN CoP. As early as 2006 EoN were invited to join the genuinely independent UIA CoP but they declined. Since that time other suppliers have made the commitment to support the UIA code and in some cases advertise and promote the fact that they do; a code which has the ability to take enforcement on behalf of organisations that have contracts via a TPI, with ALL supply companies.

The publication of the Ofgem report and then the consultation seems to have stalled due to ‘legals’ so it will be some time before anything is put into effect. Meantime organisation can protect themselves from unscrupulous TPIs by asking the questions above and ask if they are signed up to the well proven, 8 year old UIA Code of Practice which is not limited in its application to only one supplier.

February 11, 2014 at 9:22am
Graham Frawley
Seeing as we have a number of recognised experts, with different stances, but who openly share the same interest of helping customers and eliminating the rogue minority damaging trust in the TPI market, what is the general consensus over this statement found on many TPI websites “We make no charge to the client for our services. The only commission we receive is direct from the supplier”

From our perspective, while it is factually accurate it does not disclose all of the facts and is misleading – it misses out the detail around whether the supplier recovers the money from the customer. You cannot establish if the TPI is an outsourced sales agent for a supplier (funded by the supplier, but leading to only limited quotes being sourced) or whether they are simply not declaring that the customer will pay inflated unit rates. We believe the the minimum standard would be to disclose this in the small print for the customer to be clear which way it operates and who the TPI represents. Do people believe this is acceptable or not?
February 13, 2014 at 4:10pm
Robert Buckley
Hi Graham,
Your checklist is well worth all businesses paying attention to. Hopefully Ofgem’s long-awaited code on energy TPIs will finally bring clarity to all of this. Both codes referred to above have helped to raise broker standards but unfortunately can be worked round by the unwilling. Ofgem’s code really needs to capture all TPIs and may be the only way to do this is through a licence obligation on suppliers. Its consulation is expected shortly

https://www.ofgem.gov.uk/publications-and-updates/third-party-intermediaries-tpi-recommended-proposals-regulation-non-domestic-tpis

The code must also tackle transparency (where the minimum is full disclosure of all fees on request by the customer) and market reach and also remember that its purpose is to make the market work better for consumers. I have put a link to one of our blogs with more on this.
thanks
Robert Buckley
Cornwall Energy
February 07, 2014 at 11:53am
Stuart Dawes
Geoffrey, Duncan, Robert – Many thanks for opening up and lending your experience to the discussion.

Yes, we need to keep working together to see the standards we all seek delivered by an Ofgem backed TPI Code of Practice (COP). In our view it should be mandatory, not voluntary, and require upfront accreditation of participants or we risk people being able to work around it or utilise it to their advantage. The sooner we achieve that, the better.

We don’t think suppliers should police the TPI market, but we should try reduce the risk of rogue brokers misleading customers. So, in the absence of a mandatory COP with upfront accreditation, supplier agreements will continue to be an important aid to customer protection. For EDF Energy it has also offset the dependency on waiting for a mandatory CoP to be delivered.

We hope that sharing our experience helps move the debate along and support an effective industry change that works for all reputable parties to make life more difficult for the rogue minority.

Thanks, Stuart Dawes, TPI Relationship Manager, EDF Energy
February 12, 2014 at 2:04pm
Duncan Sedgwick
Whether we like it or not some customers have received a bad experience from TPIs over the years. To be effective there urgently needs to be an industry wide single Code of Practice which regulates how everyone operates in the sector. Eon launched one back in 2012 and it is sad that other suppliers have not joined but are waiting for Ofgem to issue their views. To be effective this Code must have real and genuine teeth with independent management and audit. Why the industry has to wait to be told is a question which every supplier and TPI should ask themselves. Important to remember that the vast majority of TPIs are honest and genuine so let us hope we get a Code firmly in place before the end of 2014. No more delays
February 06, 2014 at 2:15am
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