Energy Broker Commissions Explained

Are you a business owner wondering how energy broker commissions work? If so, you’ve come to the right place.

If you run a business, there’s a good chance you’ve already come into contact with an energy broker. If you’re fairly new to the world of business or you’re just starting to seek out new energy supply contracts, you may find yourself wondering how the process works.

Whilst there are a lot of legitimate energy brokers working within the industry, there are also many agents acting as rogue brokers. These brokers act illegally, setting up contracts with business owners in order to benefit themselves, rather than the client.

At Business Energy Claimline, we’re an organisation that seeks out justice for people who have been mis-sold their business energy contracts. Since we were founded in 2001, we’ve helped thousands of people with their energy broker claims, and we hope to help many more in the years to come!

If you think you’ve been mis-sold your energy broker contracts and you’d like to start the process of making a claim, fill in your contact details on our online form and we’ll get in touch.

The role of an energy broker in the energy market

Energy brokers are essentially people who work with businesses and individuals to find the best market rates for their energy bills. Whilst domestic energy brokers do exist, they’re much more common in the world of business.

Businesses tend to use a lot more power than domestic users, which is why they use energy brokers to source the best deals for them.

A broker will assist their client in finding a suitable tariff for their electric or natural gas, usually by communicating with energy suppliers and energy wholesalers. They’re also sometimes known as Third Party Intermediaries (TPIs).

An energy broker is supposed to help you by finding the best business energy deals, although they may have several other duties, such as:

• Monitoring your energy consumption and business account
• Informing you of when your contract is set to expire and your options going forward
• Ensuring the transition goes smoothly if you decide to switch to another supplier at the end of your contract
• Giving advice on how to manage your energy more efficiently to help you cut costs and stay more eco-friendly

Brokers fund themselves through commission fees. These fees may vary depending on your contract, the broker used, your chosen energy supplier and the service provided.

Energy brokers act across all areas of the energy market, from the ‘Big Six’ (British Gas, Scottish Power, EDF, npower, Eon and SSE) all the way down to smaller suppliers. There are thousands of brokers across the UK – whilst some of them act legitimately, many work in a morally ambiguous way.

If you’ve taken out a business energy contract through a broker in the last few years and you’d like to find out whether you could claim for mis-sold commission fees, you can start a claim with our expert team today.

How are energy suppliers compared by an energy broker?

When it comes to the world of energy brokers, every situation is different. When comparing energy contracts, your broker will look at many different options in an attempt to find you the best deal for your needs. Most brokers will have a list of preferred suppliers to choose from, whereas others may look across the board.

When comparing potential suppliers, your broker will look at things like:

• The terms of the contract
• Current and projected market trends
• The price of each unit of energy
• Any contract clauses associated with potential deals
• Whether you need gas, electric or a combination of the two
• Potential cost savings
• Any additional fees that may be involved in the process, as well as all non-commodity costs
• Anything else that may be included within the contract

For your broker to successfully compare different deals and suppliers, you’ll also need to provide them with some information. You will need to provide:

• Your business address, as well as the address of any other business premises
• Your current supplier
• The size of your business and the number of staff you have working for you
• Records of your previous billing details from your current supplier
• Your MPAN (Meter Point Administration Number) for your gas and/or electricity metres
• A signed letter of authority from you – this should usually be on letter headed paper with your business details on it

The more information you give, the better service your energy supplier can provide when researching potential business energy contracts for you.

How do business energy contracts differ from domestic energy contracts?

If you’re new to the business energy market, you might assume that business energy contracts work in a similar way to domestic energy contracts. However, the two systems are very different.

Businesses tend to have a higher rate of energy consumption than domestic users. This is because businesses typically have more equipment to power. If you have a large site, you may also need to pay more money to heat the building effectively. If your business has more than one site, your bill could be even higher.

This is one of the main reasons why business owners often consider going through a broker to source their energy, as brokers are supposed to find the best deals for their clients. However, this doesn’t always work out well for the business. Many energy brokers choose to abuse their position in the market in order to earn greater commission fees for themselves.

With a domestic energy contract, you can usually switch energy suppliers and change your tariff at any time (although you may pay an exit fee to leave your contract). With non-domestic energy customers, it’s much harder to leave an energy plan – the contract can usually only be cancelled once it has come to an end. You’re often locked in for the duration of the plan, so you can’t switch until you’re nearing the end of your long-term contract.

You also can’t enter into a new business energy deal without speaking to somebody at the energy company that you’re wanting to switch to. This is because there are many different factors that need to be addressed first, such as:

• The size of your business (for example, whether it’s classed as a small business or a large business)
• The consumption habits of your business (and whether that’s likely to change during the contract period)
• The location of your business
• Your working hours and the time of day your business functions
• The industry your business belongs to
• How many sites your business is located on
• If your business is run from home (if it is, your business needs to use at least 50% of your annual energy consumption)

Once this information has been provided, you will then be able to get a more accurate quote for your business energy. You’ll often get more choice over the intricacies of your energy quote than if you were applying for a domestic rate.

Your unit price will usually differ depending on the size of your business – larger businesses tend to get a lower unit rate when compared to small or medium sized organisations. However, this may differ depending on your needs and your chosen supplier, so it’s something you need to research in full first.

Energy broker commissions: Explained

Energy brokers are paid via commission fees, with the rate depending on a number of different factors. It may be worth shopping around first to find out which brokers offer the best fees before you commit to signing a contract.

Your broker is allowed to charge you commission fees, however they have to be transparent and upfront with you about them. However, mis-selling of business energy contracts is rife within the energy industry, as undisclosed commissions are often hidden from the client.

These fees may be completely undisclosed to the client in some cases, whereas in other situations they may be classed as hidden cost – e.g. they may be concealed within the small print of your contract.

Energy brokers often have relationships with certain energy suppliers, meaning they tend to only offer quotes from those companies. Whilst this isn’t necessarily a red flag, some brokers may only give you quotes from companies which can give them a higher commission. They’ll often obtain better commission rates from energy suppliers that they work with on a regular basis, due to giving them repeated custom.

Your broker is supposed to find the best energy deal for your business. However, in many situations they will instead go for a deal that benefits themselves, due to the higher commission charges they can earn. The broker may also falsely claim that their services are free or state that the energy supplier pays the fee, which is incorrect. This is now illegal and is classed as mis-selling.

It’s estimated that millions of businesses across the UK have been mis-sold their energy contracts, and many of these companies are unaware that they could be able to make a business energy claim. Ofgem have recently started cracking down on mis-selling within the energy sector, although the industry was largely unregulated until recent times.

It can be difficult for business owners to know when they’ve been mis-sold their business energy contracts, which is where we come in.

At Business Energy Claimline, we aim to bring justice to business owners that have been mis-sold their energy supply by energy brokers. If you run a business and have dealt with a broker in recent years, you may be able to open a case.

If you think you have a potential claim and would like to find out more, contact our experienced team and we’ll be happy to help.

Understanding your energy broker commissions

Before committing to a broker and a new energy contract, you should review your energy broker commissions to find out how much your broker will potentially make from your business energy contract. The commission paid to your broker can add a substantial amount of money onto your energy contract, so it’s worth finding out what commission your broker will earn from your deal.

Energy brokers have to tell you about the commissions and fees they earn from sourcing your energy supply, so getting this information shouldn’t be too hard. If your broker refuses to provide you with this information this is a red flag, and it may be worth finding another broker to work with instead. 

The commission structure

The first step is to try and understand the commission structure, which is the way in which your broker will be paid for sourcing an energy supplier for your business. There are several different ways in which your broker might be compensated – the two most common commission options are:

1. Payment as a flat fee
2. Payment as a percentage of the energy cost

In some cases, you may be charged a flat fee by your energy broker, regardless of the amount of energy used during your contract period. This may differ slightly depending on the size of your business, however in some cases it will be a set fee regardless of business size. You can usually choose to pay this upfront or as a series of instalments during the duration of the contract.

If you decide to pay your broker based on a flat fee rate, this is something that you should agree with them before signing the contract. Because you have to arrange a flat fee before the agreement is signed, this option may give you more transparency over the amount of commission paid.

Another benefit of paying a flat fee is that it could be cheaper than paying a commission based on the energy you use, also taking a lot of the stress and uncertainty away from paying your bill later.

Some brokers may charge additional fees on top of the commission and they may try and hide these instead, so it’s important to check through your contract fully before agreeing to it. Examples of some of these fees include:

• Charges for ongoing management services
• Transaction fees for each energy deal secured by your broker

However, in most situations these things will be included as part of your overall commission. Your broker should also advise you about the services they will be providing during your energy contract, as well as the initial arrangement with your suppliers. They’ll usually analyse your energy usage data and manage your relationship with your energy suppliers, as well as providing other help and advice.

When you pay a commission as a percentage of the energy cost, the process is a little different. You’ll usually pay a commission fee based on each unit of energy used. 

Again – this is something that may differ depending on the length of the contract and the size of your business. It’s easier for energy brokers to add secret commissions to your contract when you pay in this way, so this is something you need to be aware of.

However, there are several ways in which you can benefit from paying broker commissions as a percentage of the energy cost:

• Increased transparency – Whilst it’s easier for a rogue broker to hide secret commissions, you may have more transparency when using a legitimate broker. If your broker is working legally, you should have a greater degree of visibility into the cost of their services, as your commission fees are based solely on the energy costs you incur. However, many brokers will hide their fees, so this may not always be the case.
• Greater flexibility – You get a greater degree of flexibility when paying your broker commissions as a percentage of the energy cost. You may be able to negotiate a lower commission percentage if your business is predicted to use a large amount of energy. 
• Less consumption may mean lower commissions – Paying broker commissions in this way may put you at an advantage if you predict that your business energy consumption will be low. If you’re a small business or you only use a minimal amount of energy, your consumption will be lower, resulting in cheaper fees overall.
• Other cost savings – Energy brokers get incentives to provide better energy rates for their clients, passing the cost savings onto you. 

Before you sign a contract, you should make sure you’re aware of which way your broker commission fees will be paid. Not only will this allow you to choose the best payment option for your business, it will also help to keep you aware of any secret payments and fees your broker may try and add to the deal.

Once you’ve chosen a contract, you should review the commission structure to ensure it’s fair and transparent. You should research and compare the average commission rates in your area, to ensure the deal you’re interested in matches up. If anything looks suspicious, it may be worth finding another broker.

Be aware of any hidden fees

Once you’ve chosen a broker and an energy deal, you should move onto the next step. Before committing to an energy contract with a broker, you should check for any hidden fees, which may include secret commission charges. 

When reviewing the commission agreement, you should read it very carefully, making sure to note down any instances where you find vague and ambiguous language. You may see terms used such as ‘transaction fee’ or ‘administration charge’, and these extra payments can quickly add up if left unchecked. This is one of the ways in which unethical energy brokers attempt to hide their fees. 

If your broker refuses to elaborate further or keep using vague language, it’s a good sign that they are attempting to hide something from you.

Check existing relationships between your broker and potential suppliers

Many energy brokers have pre-existing relationships with certain energy suppliers, meaning they’re more likely to try and arrange a contract with them.

There is often an incentive for brokers to use the same suppliers, as the more clients they arrange contracts with, the higher the commission they receive for their work. Brokers are supposed to find the best deal for the client, but in these situations, they often choose the deal that gives them the highest commission rate instead. 

This means that they are not acting in the best interests of the client they are representing, which should be a red flag for any business owner.

If your broker suggests energy suppliers that they already have a relationship with, this could be considered to be a conflict of interest. You should review your commission agreement carefully before signing it, looking out for any wording that suggests a conflict of interest. 

Reviewing the termination clause

One of the most important things in your commission contract is the termination clause.

This clause provides information about terminating the contract and should tell you about any additional fees you may incur if you end the contract early. It should also inform you of your rights and any other outstanding obligations you may have if you terminate your energy contract before it’s set to end.

How can you find out how much commission you’re currently paying?

If you’ve already set up an energy contract through a broker, you may be interested in finding out how much commission you’re currently paying. If you’re not sure about the exact details of your deal, it’s worth finding out. You may be able to make a claim if you’ve been mis-sold your business energy contract.

The first step should be to contact your energy broker directly. However, if they’ve been unethical with your commission structure, you may not get an answer from them. If they refuse to provide more information or speak to you using vague language, this is a sign that you’ve been mis-sold your business energy.

Another option is to speak to your energy supplier directly. Your supplier should be able to tell you exactly how much commission you’re paying to your broker, as well as any other incentives that are involved with the deal. You may need to get permission from your broker first to contact your energy supplier – if they’ve acted in a legitimate way, this shouldn’t be an issue.

If your broker refuses to provide permission for you to speak to your supplier, this is a red flag.

If you are able to get in touch with your energy supplier, they should be able to provide you with documentation breaking down your commission structure and any other fees associated with your account. Your commission fee will usually show you how much commission you are paying per unit of energy – generally in pence per kWh.

By comparing the amount of energy you expect to use over the year with this amount, you can make an estimate of how much commission you will pay for the contract period. This may not be exact, as energy consumption can fluctuate. If you’ve had the contract for more than a year, you can make a calculation based on the energy consumed in the previous year.

Have you been mis-sold a business energy contract?

If you run a business and think you may have been mis-sold a business energy contract with hidden energy broker commissions, Business Energy Claimline is here to help.

Since we started in April 2001, we’ve helped many clients to make successful business energy claims, and we hope to help more people along the way. This makes us perfectly poised to be able to open a legal case for you against energy brokers using unscrupulous business practices.

We’re accredited members of the law society and consider client satisfaction to be extremely important, maintaining high standards throughout everything we do. We also work on a no-win, no-fee basis, ensuring you won’t pay anything unless your claim is successful.

You may be eligible to make a claim if you:

• Have recently used a broker to source a business energy contract agreement or deal
• Are a business owner or are in charge of structuring energy for multiple businesses
• Have recently structured a deal for a serviced office space that requires you to manage and arrange your own energy bills

If you’re considering taking legal action against an energy broker and you’d like to find out more about the process, contact us on 01524 231 350 for a free assessment.

Who are energy brokers regulated by?

Until fairly recently, energy brokers were unregulated, which led to many agents working within the sector acting in an unethical manner.

Whilst energy brokers are still largely unregulated, Ofgem introduced new regulations into the industry in 2022. These rulings provide more protection for companies seeking to sign new business energy contracts.

Ofgem has been working closely with an organisation known as Ombudsman Services to improve the experiences of microbusiness customers when seeking new business energy deals. This is a direct result of Ofgem’s Microbusiness Strategic Review, which was published in March 2022.

From the start of December 2022, energy suppliers can only work with third-party brokers or TPIs (Third Party Intermediaries) that are registered with a qualifying alternative dispute resolution scheme (ADR). Another obligation that came into being in October 2022 states that the provision of principal contractual terms to microbusiness customers has to include third party cost information.

If you use a third-party broker and they fail to adhere to these terms, they are breaking the law and you may be able to take legal action against them. If you think your energy broker has worked in an unfair and illegal manner when arranging your business energy contracts, you may be able to make a claim against them.

If you’d like to find out more about taking legal action against your energy broker, start your claim with us today.