Schneider Electric recently co-sponsored The Naked Company, a panel discussion and roundtables hosted in London by The Crowd, a catalyst for crowdsourcing the collective intelligence of corporate leaders. Before anyone gets the wrong idea, I should point out the event was targeted to fully clothed professionals across communications, sustainability and external affairs, and covered emerging trends in sustainability from product and supply chain transparency to data and reporting transparency and more. (This was just the most recent of a dozen emerging topics.)
The Call for Greater Transparency
This topic is creating serious debate inside and outside of corporations across many sectors. I think it can and should apply to areas of energy consulting, particularly in the United Kingdom and Ireland (UK&I), where transparency has been in the news a lot lately. Many energy brokers there – and, frankly, in many countries – receive hidden commissions from energy suppliers in return for placing the brokers’ clients in energy contracts. Obviously, this structure makes it difficult for brokers to consistently act independently and in the best interest of their clients. And, unfortunately, this type of behavior can cast a shadow unfairly over the whole energy advisory sector. As a case in point, one of my colleagues shared this client feedback:
“We have all focused strongly on costs over the last few years and the value of each pound of spend, but the area of energy has remained somewhat difficult due to the lack of transparency on the fees that are charged from brokers and hidden costs.”
Energy brokers and advisors – usually called third-party intermediaries or TPIs – play a vital role in the energy procurement strategy of many companies. Consumers often rely on energy consultants for advice, but many find it difficult to establish the actual cost of that advice as this client experience illustrates:
“In 2010 we were persuaded to join our broker’s ‘basket’ portfolio. The rates turned out to be very uncompetitive, around 30% higher than the short-term contract we had just placed – and we were locked in for four years. The whole experience left a nasty taste, and we would never enter into an agreement where we didn’t have a clear idea of the charges, or broker commissions we would be paying for the advice.”
Unfortunately, these experiences are surprisingly common in the United Kingdom & Ireland. A few disturbing facts on the subject:
- 1. A recent study of 504 businesses by Cornwall Energy revealed 37% believed their broker’s service was free, while a further 42% didn’t know how much they were being charged.
- 2. According to one major energy supplier, the company routinely pays more in hidden commission to brokers than it generates in profit from energy bills of this type of transaction.
- 3. According to Citizens Advice, 42% of mis-selling complaints from small businesses (Nov. 2011-Oct. 2012) contained references to broker behavior.
Know Your Broker
Brokers that don’t disclose their fee structure are often taking commission from their supplier. This practice isn’t illegal, but it’s disingenuous and unethical when the service is represented as free. If you fall into either the 37% or 42% categories above, here is some truly free advice that likely aligns with your corporate purchasing policies:
- > Ask for a Service Level Agreement that lists the services the TPI provides in exchange for your business.
- > Ask your TPI for a warranted disclosure of fees for each service provided directly and/or through a supplier.
- > If your TPI acknowledges it is accepting payment from the supplier, ask for a written guarantee the TPI will discontinue the practice as it relates to your account. Or, better yet, strongly consider moving your business to a TPI that already embraces transparency.
One thing is clear: transparency is essential in energy procurement. That’s why we support OFGEM’s efforts to enforce transparency. We’re fully confident shining a light on unscrupulous practices will help remove any shadows hanging over the energy advisory sector.
For more information on outlawing misleading TPI practices and hidden commissions, check out this short video. You may also be interested in our recent Fast 5 on the three C’s of energy buying: classic, contemporary and consulting traps.
Read my previous post on brand sustainability as an emerging KPI in retail.