Awards mean nothing, would you buy a house without a roof?
Your business energy budget is on the way up now. It's probably the year to look at alternative energy brokers - but in this sector it can be hard to see the wood through the tree.
Trust me we understand this pain completely and putting your faith in energy experts is a really good idea, but how do you recognise a rogue broker from an accredited one? Well, awards don't really stand for anything. That's right, I said it. Awards don't mean what they should do - and that's coming from the CEO of a company who's won a few of them!
Awards don't mean what they should
If you think I'm shooting myself in the foot here let me explain. I started amber in 2009 and ever since then I've pushed the team and the company to be the stand-out 'good difference' in the energy sector.
To be completely transparent in their dealings and to push the status quo (you'll hear me calling this 'challenge the norm' in the office regularly).
Now I'm hugely passionate about delivery to businesses and I want every single business we serve to feel this good difference whether they've had a bad experience or not. Indeed, along the way we've applied for awards and won many - perhaps 40 or so now - some were harder than others to win but none tested the team to see if we were what we say we are.
But how can that be the only way to recognise a talented company that delivers to one that over-charges? to one that delivers very little added-value and cashes in on market swings? (as if the price of wholesale energy only travelled in one direction?)
We have a huge problem and it defeats the normal laws of economics
Normally when pricing a product when goods are described as homogeneous i.e. they are directly substitutable (which many energy brokers are) the price would be highly elastic. i.e. as they push up their margin even by a small amount they would lose clients whilst at the moment huge margins on big business deals are being recorded against several homogeneous brokers.
If the economics worked and you were just looking to say compare energy suppliers and choose the cheapest (which is a very low skilled energy broker and I would describe this as 'money for old rope') you would choose the lowest cost broker in terms of the fee's that they charge. On 1 business supply this work would take as little as 30 minutes to complete and as such I'd suggest it's worth no more than £100 to complete yet a SME broker recently claimed to me over charging an average of £2,500 per deal of this type. It's money for old rope because the service being offered here is no different to a comparison website - there is no skill or experience needed to see one price is lower than another. It's a shame because there is a lot of talented analysis, optimisation and market tracking intelligence that can be applied to these situations to navigate lower energy bills for businesses and the fee for this skilled consultative and solutions based work comes in at a lower cost to the rogue broker 'money for old rope offering'.
However, the average business owner when trying to take the high road and avoid being ripped off does completely the opposite. Instead of focusing on services delivered and agreeing KPI's and a project plan with a broker they find themselves asking for 3 quotes on a given day and choosing the lowest of the 3.
So why doesn't this work? Well to start with somehow OFGEM haven't developed an online tool for bid submission of pricing - I can't understand why as it would allow a business to compare offers under assurance (and perhaps even insurance) from Ofgem that they can't as a business get ripped off by miss-representation of pricing. Ofgem has deployed an average ppkWH code of practice to the domestic tariff engine websites so I can't see why they couldn't start to navigate a little more upstream...
** What I mean is the rogue broker will present a price that looks lower on paper but is actually 20/30% more. **
To burst the bubble here this is using a pass-through quote when compared against a fully fixed fully inclusive quote. Now the two different set-ups both offer tactical advantage in different situations but this isn't what I'm shedding light on here.
What I am horrified by is... I suppose someone trying to sell a house without a roof? It would be pretty obvious, right?
Unfortunately, because the energy sector is complex and big businesses are buying houses worth millions (thinking they are getting a roof) and then turning up to find it gets pretty cold and wet in the winter. If you think I've lost the plot let me just reiterate what I mean here...
Fully Inclusive Price Fully Fixed = The rates proposed are fixed and include everything such that you can trust in budget certainty and that your bill will marry up with the rates for the contract duration. VAT and the climate change levy (CCL) are normally the only costs that are charged based on what they are at that time during your contract period (i.e. charged at the prevailing rate).
This first one then is your house with a roof and a front door where you don't find yourselves picking up additional costs to finish the house later on.
Pass-through contract = as little as 30% of the energy price is fixed. That is the wholesale cost of energy is agreed and fixed at the start and sometimes some other components. The costs vary during the contract period based upon what the charges are at the time of use but you have also only been presented with unit rates that represent part of the total cost. If you were to budget from the unit rates provided here, you would end up picking up lots of additional charges later on and realising you were miss-sold - 'my house has no roof!'.
Of course, it's easy to go look at a house you are buying and to see it has a roof but when buying an energy contract from a third party or a supplier it can be very difficult. This could have been presented to you in a basic form as:
Contract Offer 1: 9.5p/day, 7.1p/night (ppkWH)
Contract Offer 2: 7.5p/day, 5.9p/night (ppkWH)
In the above it looks like contract offer 2 is by far cheaper and perhaps worth signing up with. Hopefully now you'd ask the question "are all the costs included within the rates proposed" or better still "can you fully disclose how the charges are comprised and your exact margins and I'll need you to sign a contract to confirm this". The latter comment I say is better still as this would have unearthed here the tactic to rip you off (I imagine they would have disappeared into the night at this point). As a way of illustrating this taking the same offers above the rates that they could have had:
Contract Offer 1: 9.3p/day, 6.9p/night (ppkWH) & the broker discloses they have put 0.2p/kWH uplift into the contract.
Contract Offer 2: 6.2p/day, 4.6p/night (ppkWH) & broker unlikely to disclose that they have put 1.3p/KWH into the rates.
The problem here is if the rates were still lower you'd still consider signing up so the fully delivered fully inclusive price would need to be disclosed to you. Using this example one last time this would have looked like this:
Contract Offer 1: 9.5p/day, 7.1p/night fully inclusive fully fixed excluding VAT and CCL.
Contract Offer 2: 10.7p/day, 8.3p/night fully delivered price (estimate as contract is pass-through) excluding VAT and CCL.
Now you can see that the additional uplift made by the broker offering contract 2 is a direct cost to your business and in fact the rates aren't lower at all.
So, don't awards separate the rogue ones from the good ones? Well that's the problem, you don't have to sit 'the bar' as you would if you were a solicitor or your accountancy exams or indeed your FSA accreditation. So, anyone can start an energy brokerage which means anything goes! When it comes to the awards these are open for anyone to enter and you can outsource the award writing to professional companies who know what the judges are looking for - indeed you can even do this on a no-win no-fee basis. This means you have un-regulated rogue yet award winning brokerages sprouting up and overcharging businesses.
I'd like to see awards that you must attend a mock business meeting to win. One's that require sitting and passing exams. Heck, perhaps a lie detector test for the transparency awards?
We like to sit outside of the industry at amber energy and have always stood forward to say 'we are not energy brokers' as quite frankly we don't associate ourselves with some of the companies in this market and are building our own way of doing things.
That said, we want to see regulation, accreditation and awards that mean something and there are a few smaller companies starting to follow suit and to deliver transparent, ethical and high value services.
Ensuring staff train to become qualified energy managers alongside signing internal contracts around transparency and ethical codes are our next steps.... we won't hold our breath for the industry following suit.