How to Choose an Energy Broker
Don’t break the bank – choosing the correct energy broker is essential to your success. Today’s competitive and complex energy markets have spawned a host of brokers apparently eager to help businesses find a good deal, but deciding the best one to use can be tricky.
Working with a good energy broker enables an informed and objective comparison of suppliers. Brokers can also provide the market insight needed to set up optimal purchasing strategies, while managing energy cost risk. They can help with suppliers’ terms and conditions, credit issues, moving premises, or moving from one deal to another and may have favourable pre-negotiated terms.
Not all advice is equal – pick the wrong broker and you could end up paying over the odds for an inappropriate contract.
So how do you make the right choice and pick the broker that’s right for your business, especially with so many to choose from? Here are five suggested criteria for assessing a good broker:
1. Proven Track Record:
With new brokers entering the market all the time, it’s important to choose a company with experience and a proven reputation.
- They should be well established, and/or staffed by people who have worked in the market for a while. The organisation should come with a growing and satisfied client list, backed by testimonials.
- Choose a broker that is a member of the Utilities Intermediaries Association (UIA), a trade body for energy brokers. Consumer groups, generators and suppliers have all expressed support for its aim of improving the professional image of the sector.
- A good broker should also have signed up to the supplier-sponsored Third Party Intermediary (TPI) Code of Practice. This code is designed to measure the behaviour of brokers against guidelines to ensure a high standard of service for customers. Should brokers operate outside the guidelines, they risk expulsion, loss of reputation and a halt in dealings with some suppliers.
- Regulator Ofgem is proposing to take this a stage further, by placing a license obligation on suppliers to only work with brokers and other TPIs who are accredited to an industry-governed code of practice.
2. Range of products available and market expertise
A good energy broker should offer a wide range of different services. This indicates a broad understanding of the market, and an ability and willingness to meet all customer needs.
- Familiarize yourself with the services offered by those on your shortlist. Remember that although you may not need all the services initially, they are there if you grow or move location, or if other business needs change.
- With a growing focus on global warming, it’s increasingly important to choose an energy broker who understands and has partners in the renewables market. This will ensure you make the most of advantageous rates and help reduce your carbon footprint.
- To get the best deals, a broker should also have demand-side experience in all aspects of commercial energy management and, in particular, experience in your particular sector.
3. Great Customer Service
Good customer service is imperative to building up a strong partnership and reaping the full benefits of an external broker.
- A broker should first spend time to fully understand your energy goals and the makeup of your portfolio, to plan a procurement strategy that will deliver best value. Look for a broker that offers a free energy audit.
- Be wary of claims from any broker who promises guaranteed savings on your existing bills – you are buying a market priced commodity, which may move up or down. Performance must be judged in relation to the market.
- Once a relationship is established, a good broker will proactively seek to improve a client’s deal on an on-going basis, continuously monitoring market changes to ensure that their clients get best value. It is not enough to just send a set of prices from three or four suppliers every year.
- Good brokers won’t wait for you to ask questions. They will keep you fully informed about decisions you need to make, and actions taken on your behalf. To enable the broker to best act on your behalf in negotiations with suppliers a Letter of Authority (LOA) should be signed.
- A good broker will assign a dedicated individual to personally manage each account. You should be able to reach them easily whenever you need to.
4. Clear Fee Structure
Transparency is of huge importance, and outlining a clear fee structure is part of this.
- Your broker needs to provide a clear breakdown of their fees, separated out from the charges made by suppliers. You can pay either with a direct fee or by adding a surcharge to the suppliers charge – brokers should offer you the choice.
- In order to benchmark one broker against another accurately, you need to check brokers’ fees with suppliers. Customers can also check with suppliers to confirm that there are no hidden commissions or other incentives for the broker.
- 38% of businesses do not think that brokers’ charges are clear or easily understood. Many still either believe their broker is providing a free service (37%), or do not know how much they are being charged by their broker (42%).
5. Independent Status
Brokers that appear to offer a free service are probably being paid by suppliers. Choose an energy broker with an independent status to ensure they assess the widest range of suppliers.
- The more partnerships with suppliers an energy broker has, the better – including not just the Big 6, but also smaller business-only suppliers.
- If the broker is being paid by one or more suppliers, he is more likely to be in the business of maximising sales rather than finding the best deal for you. Deals include volume bonuses when they place a certain amount with a particular supplier.
To recap, good brokers should have:
- Some record of good performance in the market and membership of accredited bodies.
- A broad range of products and market expertise – both on supply and demand side.
- Realistic claims, personalised customer service, and a proactive well-communicated business relationship.
- A clear fee and payment structure.
- Independence from suppliers.
Nick Linklater is head of corporate accounts for ENER-G Procurement Limited.
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