The emerging scandal of hidden commission in the business energy sector
If your business has instructed an energy broker who was not transparent about their commission, this may give rise to a claim.
Any business using gas, electricity or both may instruct a broker to manage its energy procurement. Most will have received a cold call or email from a broker at some stage, and sometimes the timing is right.
There are lots of these brokers out in the market. They call themselves consultants, agents, brokers and variations on that theme. OFGEM calls them TPIs, which stands for Third Party Introducers. Some of them have scaled up into very substantial operations, operating call centres often based in the North West or the North East of England.
None of this need be controversial. However, what most people don’t know is that brokers aren’t regulated by OFGEM. There is no set of rules by which they operate, and they aren’t held to any set of standards. This has allowed the rise of some very sharp practices in terms of service standards and charging.
Your relationship with a broker
Your energy broker is your agent and owes you a duty of utmost good faith, which means avoiding any conflict of interest.
However, where your broker is introducing you to a contract with a supplier who is going to pay a commission, that’s a clear conflict of interest. The broker must notify you of the payment and secure your consent. It’s not enough for them to mention in the small print that they may or even will receive a payment from the supplier. They have to give you the information that you need in order to give your informed consent.
And what if they don’t? Well, a secret commission or half-secret commission is also known as a bribe.
Do you know how your energy broker is getting paid?
Some brokers are entirely up front about their charges. They give you the option to pay an up-front fee or for them to take payment from the supplier. They explain how the commission is calculated, they tell you the rate and explain that your unit charge will increase by the amount of that commission. These are the good guys.
But there are many brokers out there who don’t do this. They don’t mention it on the phone, in correspondence, in their terms, or even in the small print on their website.
If you have used a broker, you should stop and think for a moment whether you know how they get paid. Perhaps they’ve told you that the service is free of charge, or even that they may receive a payment from the supplier. So far, so good. But what do you know about that payment and have you given your informed consent?
Do you know, for example:
- the nature of the broker’s relationship with the supplier;
- the amount of the commission;
- how it is calculated;
- the commission rate;
- that the broker has an interest in you switching from your existing contract;
- that the broker has an interest in you entering into a longer contract;
- that you may be able to achieve a better price directly or through another broker who might charge a lower commission;
and this is the big one
- that the supplier adds the amount of the commission into your unit charge and charges it penny for penny straight back to you.
If you don’t know these things, then you can hardly have given your informed consent; and if you haven’t given your informed consent, then the commission amounts to a bribe.
Can you make a claim against your energy broker if there was hidden commission?
Where your agent has made an undisclosed profit, you are entitled to an account of that profit.
In the case of a broker’s commission, you are entitled to claim the entire amount of that commission.
Can you make a claim against the energy supplier if you didn’t consent to the commission?
Supplier’s generally leave it to the brokers to explain their commission. However, that’s not good enough. The supplier has a responsibility to check that you have consented or pay the consequences.
In the equation where the commission is a bribe, the supplier is the briber. So if you didn’t consent to the commission your broker received, you will be entitled to claim it from your supplier as well as your broker.
How can you check if you have a claim?
Clarke Willmott is pursuing a substantial number of these claims for its clients. They vary in size enormously, from a few thousand pounds to over a million, which is a lot of undisclosed commission.
If you have used an energy broker, you should double check how that broker has been paid and whether you gave your informed consent, using our list above as a guide. If you didn’t then you may have a claim.
If you have any questions or would like to discuss a potential claim, please contact Alex Jakubowski.