Expert energy analysis and insight for UK businesses.
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:
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.