HCR Law Events

18 March 2022

Unscrupulous energy brokers and hidden commissions: does your school have a claim?

A number of schools use brokers to source the best deal on their energy contracts. However, what many might not realise is that the broker receives commission from the energy company for introducing customers, which is often added on to the customer’s monthly bill. If this is the case for your school, you may be entitled to compensation from the broker or even your energy supplier – read on to find out more.

Energy brokers – known in the industry as third-party introducers (or TPIs) – often cold call or email potential customers with the promise of reducing their energy bills. With a comprehensive insight into the energy market, TPIs can provide a valuable service to schools, particularly now with wholesale energy prices at an all-time high.

However, unlike in the consumer energy market, TPIs in the business market are unregulated. Questionable practices have begun to emerge, particularly in relation to commission. This concern, amongst others, led Ofgem (the gas and electricity regulator) to undertake an investigation into the business practices of TPIs in 2021.

In the investigation, Ofgem concluded that many TPIs in the business energy market lack transparency about the commission they receive. Often TPIs do not mention commission to their customers at all or they say that their services are free of charge. Alternatively, details of the commission are mentioned in the small print of the TPI’s website or the TPI states that it receives some commission from the energy supplier without going into detail.

Without realising, schools may be paying commission to TPIs on a monthly basis as an uplift on the price per unit charged on the energy. They pay an inflated price for the energy having been told by the TPI that they would receive the best possible price.

In addition, Ofgem found that the majority of businesses which instruct TPIs are unaware of the commercial relationships between TPIs and energy suppliers. They assume that TPIs are acting in their best interests, rather than directing them to the energy supplier(s) which will pay the TPI the highest rates of commission. Sometimes, TPIs encourage businesses to tie themselves into energy contracts with less favourable terms because the commission is greater.

If your school used an energy broker and it was not made clear at the time how commission would be charged (or even, that commission would be charged at all), you may have a claim against the broker for the whole amount of the commission plus interest. This is because the broker was your agent and should have acted in your best interests at all times. Failure to do so gives rise to a claim.

Some of these claims have been significant. For example, Windermere School in the Lake District brought a claim against its energy broker for £200,000 and claims as large as £1.8m have been seen. If you have used an energy broker in the past, it is certainly worth considering. It is also possible for claims to be brought against energy suppliers, which will be useful to some potential claimants in cases where the broker may not be an easy target or may no longer exist.

If your school has changed energy contracts within the last six years, it is worth checking the terms both of the new energy contract and any contract with the TPI used.

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About the Author
Adam Finch, Partner, Head of Commercial Disputes

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