The existence of “independent” consultants and brokers in the UK retail energy market is a relatively new concept and a symptom of market deregulation and intensifying competition, which began in the 1980’s.
For a number of years now, these third-party intermediaries (TPIs) have operated within the market untouched by regulation.
Since 2005, the Office of Gas and Electricity Markets (Ofgem) has been investing significant time and resources to better understand the impacts of unregulated market forces, such as TPIs, on consumers.
What the regulator has come to discover, across a multitude of public consultations, is genuine potential for consumer harm, predominantly caused by mis-selling and unfair contracting practices. Most notably, it has identified a lack of transparency over how TPIs are remunerated for their services, with disproportionately adverse effects, in theory, faced by microbusinesses (0-9 employees).
As at 2014, Ofgem was aware of over 1,000 active TPIs in the non-domestic consumer market, collectively employing a wide range of business models.
In circumstances where business customers have been approached by (or contacted) an energy broker, often they will have received assurances that the broker would act on the business’ behalf to negotiate the best price on the market and save them money.
It is likely that the broker will have disclosed that their services would be free-of-charge and/or that the consumer would not be paying.
Many businesses may have understood that the costs associated with TPI services, in the form of commission or otherwise, would therefore be passed onto the energy supplier.
However, this is not always the case.
In fact, it is commonplace for businesses to have unknowingly and indirectly paid broker commission themselves, over the duration of their supply contracts.
When customers obtain quotes from brokers for the price of a single unit of energy consumption (the “unit rate”), expressed in pence per kilowatt hours (p/kWh), a proportion of this price may include commission separately agreed between the supplier and broker (the “uplift”) and concealed from the customer.
In such a case, built into the aggregated cost of energy displayed on a periodical invoice would be the base rate (retained by the supplier) and the uplift (transferred to the broker), the former of which would be an anticipated component of the bill and the latter of which would not.
Astoundingly, it was not until October of 2022 that suppliers were first compelled to explain to microbusinesses, using plain and intelligible language, the total amount of TPI costs (and “benefits of any other kind”) that would accrue over the full duration of their supply contracts, within principal contractual terms.
It was also not until this date that suppliers (by themselves or via brokers) were compelled to bring principal contractual terms to the attention of microbusinesses in all cases, both pre- and post-contract entrance. Previously, it was enough for suppliers to merely declare that “all reasonable steps” had been taken to avoid any breaches of the regulatory framework (supply licence conditions).
Whist suppliers and brokers may have taken steps to tighten up their act in recent years, it is conceivable that countless non-domestic consumers’ prior engagement in the complex and opaque retail energy marketplace, with a lack of sophistication and expertise, made them vulnerable to exploitation and fiscal detriment.
According to the UK Government, last year, there were 5.2 million microbusinesses operating in the UK (accounting for 95% of all businesses).
In respect of geographical distribution, Essex falls within the 3rd highest ranked UK region for business count (East of England).
Indeed, statistics demonstrate that Essex, in particular, is an area of rich entrepreneurial talent, with the county placing 5th (out of 47) on the 2022 UK league table of registered companies, published by online software service, Inform Direct.
The service’s annual review of company formations extracted data from Companies House and the Office for National Statistics data (which broadly align with official Government figures ), to record a total of 148,387 Essex-based companies.
It is foreseeable that a percentage of these c.150,000 companies (some of which will be members of the Essex Chambers of Commerce), have been affected by broker activity in the procurement of historic energy contracts, or remain affected by brokered multi-year deals that are still ongoing.
BC Legal Energy, a Law Firm based in Southend-on-Sea, is involved in litigation against energy suppliers and is seeking to recover compensation for business clients that it represents, to the extent that their supply contract statements were inflated by brokerage fees.
The Firm is alleging that the relationship of trust and confidence that existed between business energy consumers and brokers was eroded by energy suppliers, which assisted and encouraged brokers to be motivated by their own commercial interests, frequently in the form of hidden commissions.
Business energy mis-selling claims are part of a new and developing area of agency law, with BC Legal Energy positioned at the forefront. The Firm has been advertised in The Sunday Times and one of its cases has been reported in The Scottish Sun and featured on an ITV News segment.
If any interested members of the Essex Chambers would like to discuss the prospects of pursuing a successful legal claim, please call 01702 568710 or email email@example.com to get in contact with a member of the team. Alternatively, please visit bclegalenergy.com to register your potential claim.