Greater Transparencyin the UK TPI Sector

Love Energy Savings

H1 2017

TRANSPARENCYGREATER

IN THE UK TPI SECTOR

Contents

3.Introduction

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4.Greater Transparency in the UK TPI Sector

6.What to look out for

8.Malpractice

9.Why Use a TPI?

11.Letter of Authority

12.Example Letter of Authority

13.TPI Code of Practice

15.Other Costs

16.Summary

18.Glossary

19.About Love Energy Savings

Introduction 3

This report looks to better highlight how some energy Third Party Intermediaries (TPIs), unfortunately, capitalise on an unregulated market to generate huge profits, sometimes at the expense of their non-domestic customers. Similarly, it examines what Small and Medium Enterprises (SMEs) should look out for and expect from reputable TPIs. This includes the significant benefits to businesses in terms of the savings they are able to secure, alongside the energy expertise they are able to offer.

With supply margins expected to be amongst the tightest on record during H1 2017, this issue is becoming increasingly critical to businesses as they attempt to juggle rising costs, security of supply and the need to reduce their carbon footprint. With Ofgem, the non-ministerial Government regulator for gas and electricity markets in the UK, recently announcing that they are halting work on implementing an official Code of Practice, at least for now, we aim to provide the best guidance possible for businesses to ensure that they are properly protected from the risk of falling foul of a dishonest TPI.

the ‘Big Six’ charging on average 8% margins on electricity and 10% on gas to SMEs, compared with averages of 4.4% for domestic customers and larger businesses. In many cases, these inflated prices are due to suppliers allowing TPIs to simply ‘write their own cheque’ in terms of the commission they are able to add to the base cost of electricity and gas.

To provide greater transparency on how commission works, a standard structure should generally operate as follows: upon your contract going live with your new supplier, your TPI will either be paid an introduction fee or paid an amount over the length of your contract, either of which would be included in your bill. This fee will be contingent on your actual energy consumption over the duration of your contract.

Without official guidelines from industry regulator Ofgem, the TPI sector relies on self-governance to ensure that customers are treated fairly. Love Energy Savings are proud to be ahead of the curve, adopting a completely transparent and honest approach to how we do business. Right from the start, you can see our commitment to showing prices and our compliance with the voluntary TPI Code of Practice.

The practices of a small number of TPIs has left many businesses questioning the integrity of the industry, resulting in the majority of TPIs, who operate openly and honestly, being tarred with the same brush.

The Competition and Markets Authority (CMA) concluded in 2015 that small businesses in the UK pay too much for their energy, with

Greater Trasparency in the UK TPI Sector 4

The poor behaviour of a small number of TPIs is, sadly, a contributing factor to this situation; undermining confidence in TPIs across the board. This results in lower levels of engagement between small businesses and their energy suppliers, as well as a general lack of transparency around what tariffs and better deals are available to them.

Other sectors, such as financial services, had market regulation enforced to protect customers and businesses. Unfortunately, Ofgem’s efforts to introduce similar legislation for the TPI sector have now officially been postponed, with little indication of if and when they may return to it.

It is to be hoped that a robust and effective means of policing this sector will be introduced soon. In the meantime, the market remains unregulated and, while a voluntary TPI Code of Practice provides some guidance, it is limited in its effectiveness.

Greater Trasparency in the UK TPI Sector 5

8%The ‘Big Six’ charge an average of 8%

margin on electricity for SMEs, compared to 4.4% for domestic customers.

10%The ‘Big Six’ charge an average of 10% margin on gas for SMEs, compared to

4.4% for domestic customers.

While it can be difficult for small business owners to distinguish between a reputable TPI and one that is less than honourable, there are a number of indicators that can help them to make the distinction.

In many cases, if a TPI is likely to cause you problems and overcharge, you will see a pattern of this behaviour and, more often than not, customers who have previously had their fingers burnt will have taken to the Internet to tell their story. When you are contacted by a TPI, make sure that you always research the name of the company, looking for reviews or other indications of how they operate.

In some cases, this may unearth negative reviews, complaints and warnings from previous customers, indicating malpractice; such as nuisance calls, misleading selling practices, overcharging customers and tying businesses into expensive, complex agreements that are difficult to cancel.

While this helps in terms of weeding out the more disreputable service providers, picking out real examples of best practice is less simple. However, there are some key indicators that can point you in the right direction:

Review sites: Reputable TPIs will generally have a strong bank of reviews from satisfied customers on websites, such as Trustpilot, allowing you to check that previous customers were happy with the service they received.

What to look out for 6

Transparency: A good TPI should be open and honest about their fee structure and business practice. Their website should clearly set out the benefits they offer, as should any phone calls that you receive from them. Are they able to provide a clear guideline price, allowing you to properly assess the amount of money they are able to save you on your bills, as well as gauging the level of commission that you would be paying?

Price Comparison: Price comparison sites for business energy are increasingly popular and can be invaluable in terms of allowing you to better understand the tariffs available to you and the price you will pay. Offering a price comparison is often a good indicator that a TPI offers a fair and honest service, allowing you to access key pricing information without any obligation, alongside ensuring transparency by showing you the tariffs available immediately, rather than you having to wait for a call back while they gather prices on your behalf.

TPI Code of Practice: The TPI Code of Practice will be covered in full on pages 13/14 of this report, the TPI Code of Practice lays out a code of conduct for TPIs to ensure protection for customers. While using a TPI that signs up to the Code should be a given, also consider how they market this association: do they make mention of the Code on their website and; do they explain specifically how they ensure that they are compliant with each element of it?

Media profile: TPIs are energy experts and in many cases, have a dedicated team of business thought leaders and energy specialists who provide insight and advice for business owners. With energy being such a major talking point in the media, that expertise is often called on by journalists. Look to see if a particular TPI has been featured in the media and the breadth, quality and audience of that coverage.

What to look out for 7

As with many industries, there are those businesses who take the opportunity, when presented, to push the boundaries of acceptable practice, or even cross the line into malpractice, at the expense of their customers. With the lack of regulation from Ofgem in the TPI sector, a number of ‘rogue traders’ have been able to operate with impunity, charging overinflated commissions as well as adopting other business practices that see them profit at the expense of business customers. For example, so-called ‘double dipping’ where some TPIs take commissions from both the customer and the energy provider.

For the majority of reputable TPIs, this malpractice is the opposite of how we work. At Love Energy Savings it’s our job to save our customers money and help reduce business costs in the best way we can while remaining transparent, fair and honest.

While disreputable TPIs are very much in the minority, sadly it does still happen. In many cases, this takes the form of a TPI entering into an agreement with a business, then failing to disclose the true tariff options available to them and instead signing them up to tariffs that benefit the TPI, and not the customer. This could manifest by using a supplier that pays them a significant commission, or simply charging excessive fees on top of the basic rate they are paying.

Thankfully, businesses that understand the risks should be well positioned to identify these unfair practices, and by applying the advice offered in this report, ensure that their TPI is one that is committed to working hard to secure them the best deals available.

Malpractice 8

It is important that businesses do not miss out on the benefits that an honest and transparent TPI is able to offer. Our recent research starkly demonstrates the costs to UK SMEs of failing to engage with the process of energy procurement.

Across the UK, 30% of SMEs have not switched energy supplier or tariff in the past five years. On average, they would have been able to save around £1,386* each, if they had switched to a better value tariff – cash is leaving the business unnecessarily when instead it could be reinvested.

When these figures are looked at on a national scale, the issue becomes clear: looking at just the businesses that have failed to switch in the past five years, the savings they have missed out on collectively add up to a staggering £2.4 billion! Further to this, 47% of businesses (source: Love Energy Savings data) indicated that they had not switched tariffs in the past year, and perhaps more importantly, not even explored the possibility of, leading to additional savings potentially being lost.

For many small businesses, it can be difficult to find the time to ensure that energy tariffs and renewals are given full attention, particularly when including the need to fully understand factors such as the company’s energy needs and the rates that they should expect to be paying. An honest and reputable TPI is able to prove their huge value to businesses, applying their energy expertise on the customer’s behalf to ensure that they get best value and avoid the risk of inflated energy bills.

* £1,386 is the average saving made through Love Energy Savings across 109,438 meters (from date of inception to 26.01.2017)

Why use a TPI? 9

£1,386*

53%

Average savings missed for SMEsthat haven’t switched through

Love Energy Savings.

of SMEs have looked at switching in the past 12 months

When using an experienced TPI, simply saving money on your utility bills is just one aspect of the benefits that a business can receive. As specialists that are fully immersed in the world of business energy and procurement, they are able to lend their expertise by supporting your business in a number of additional ways, including:

• Negotiation skills: Regardless of how much research you put in to finding a cheaper energy tariff, it can be hard to be sure that you have secured the best deal available for your business. A TPI is well positioned to examine all of the options available to you, as well as better understanding the fine details of a tariff and how it would fit with your energy needs, working with suppliers to negotiate cheaper prices

• Switching and administration: Many businesses neglect switching energy supplier because of the significant research and administration they perceive it requires. With a TPI, all of this is handled for you, ensuring that switching suppliers is carried out efficiently by experts that are entirely familiar with the process

• Tracking and reminders: A TPI will track your switch and monitor it on your behalf, ensuring that your contract goes live smoothly. They should inform you when your contract is due for renewal, year-on-year, following your initial switch, consistently presenting you with the best options available at that time

Why use a TPI? 10

A Letter of Authority (LoA) is a key aspect of working with all TPIs and being asked to sign one is correct practice. However, it is the wording of these letters that is crucial and, with some warning, you can use the wording of these letters to provide yourself with some clues as to whether the TPI you are dealing with is above board or not.

A TPI will almost always require a LoA from a customer, indicating that they have been appointed to act and purchase energy on behalf of the customer’s business, as well as allowing them to deal with their current energy supplier in their name.

The LoA should explicitly state that the TPI has not been given power to enter into contracts on the customer’s behalf and instead that any contracts must be approved and agreed upon by a duly authorised representative from the company entering into the contract.

Without this, you expose your business to potentially unscrupulous energy brokers that could lock you into an expensive, multi-year deal without your knowledge. To make sure you know what to look for, please find a template LoA overleaf.

Letter of Authority 11

Business Name:

Address:

Postcode:

*Authorised by: *Printed Name: *Job Title:

To whom it may concern - Letter of Authority

Love Energy Savings are hereby authorised to request, negotiate and obtain data, contract renewal prices and terms and conditions of the supply from energy suppliers, distributors, meter operators and data collection agencies. They are also authorised to serve “Notice of Termination” in connection with our electricity and gas suppliers. Love Energy Savings are not authorised to accept or sign any new contract or agreement without prior consent from ourselves.

In return for granting Love Energy Savings exclusive rights to represent our business with our existing and prospective utility suppliers, we understand that we will receive the following services for the duration of this agreement:

Service

• If you allow Love Energy Savings to secure your contract (once you are in contract), a dedicated Account Manager will be allocated to you along with a direct dial telephone number for immediate response and support

Procurement

• The tendering of our supply contract(s) to the energy market to procure optimum terms on our behalf • Active negotiation with the supplier market to secure advantageous payment, pricing and commercial terms for our business • The termination of our existing supply contract(s) on our behalf to ensure seamless transfer to our chosen subsequent contracts

Market Intelligence

• Market update service providing a review of the direction of the energy markets and any issues arising of which our business should be aware • From time to time we will receive emails and calls detailing exclusive offers and the latest news on Love Energy Savings products and services

Our Obligations

In return for the provision of the above services, we commit to providing Love Energy Savings with:

• Exclusive rights and authority to represent our company in its utility contracting needs • Any offers relating to existing or proposed energy supply contracts at any of our premises that have been received from suppliers or any other third party

We acknowledge that in order for Love Energy Savings to provide the above services on the terms agreed, it is essential that no other third party or direct employee of our company is engaged in these same activities.

This “Letter of Authority” (LoA) supersedes any previous LoA and will remain valid until cancelled.

We acknowledge that either party can cancel this agreement by providing the other party with written 120 day’s notice once the initial 120 day period from the date of this letter has elapsed.

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In the absence of official industry regulation from Ofgem, the E.ON TPI Code of Practice presents a set of standards used to ensure that TPIs operate honestly and transparently, providing potential customers with a reliable benchmark with which to assess TPIs. Currently around 200 TPIs are officially signed up to the code, meaning you should have no problem finding one that suits your business’s needs. For a TPI to be able to offer tariffs from E.ON, they must have agreed to the Code of Practice.

The Code covers a wide spectrum of activity by TPIs, ensuring that practices, such as sales, data protection, training, recruitment, contracts and commission, are all carefully governed to best protect businesses who rely on TPIs to provide them with savings on their energy bills. As stated on the Code’s official website, by signing up to the voluntary Code of Practice, TPIs agree to:

• Be bound by it and by any decisions taken under the Code by the Code Manager

• Make sure their people (including any third parties they use) understand and comply with it

• Tell customers they’re providing their service according to the Code and where they can find it

• Uphold the positive public image and reputation of the energy industry

TPI Code of Practice 13

Despite the Code of Practice providing a good starting point when assessing potential TPIs to act on behalf of your business, it does have its limitations. The independent Code Manager who revises and enforces the Code of Conduct is funded solely by E.ON – the rest of the ‘Big Six’, as well as other energy suppliers, have not yet signed up to the project.

Recently, E.ON announced that as of the end of October 2016, they will no longer actively manage the code. While they will continue to apply the Code to those TPIs that they work with, it will no longer provide the benchmark for the industry that it had done previously in order to focus efforts on providing for their existing customers.

With E.ON pulling away from supporting their Code of Practice, along with Ofgem announcing in late 2016 that work on official regulations for the TPI sector has been shelved for the time being, businesses are left with little by way of official legislation to provide protection from a potentially disreputable TPI.

Despite calls from within the industry itself as well as energy suppliers and customers, it seems unlikely that Ofgem will act to officially regulate the sector in the near future, making it all the more important that the TPIs themselves conduct business in an honest, transparent and ethical way.

TPI Code of Practice 14

E.ON Oct‘16The Independent Code Manager who

revises and enforced the Code of Conduct is funded solely by E.ON.

E.ON announced that as of the end of October 2016, they will no longer actively

manage the code.

As well as the cost of your electricity and gas, your bill will also include ‘pass through’ charges, such as the Renewable Obligation (RO), Climate Change Levy (CCL) and Feed-In Tariff (FiT), which are charges levied by the Government on energy suppliers to help support clean energy generation.

While it is correct that these charges are passed on, some TPIs exploit this system in a number of ways. Most prominently, TPIs that advertise themselves as being very cheap may well not include these charges when providing you with prices. This could, leave your business with additional costs that did not factor into your decision when choosing your tariff.

To ensure you don’t get caught out, ask your TPI if fees – such as the RO, CCL and FiT – are included, as well as clarifying whether these costs are fixed or pass through and, if pass through, at what rate.

Other Costs 15

By ensuring that UK businesses better understand their energy needs and the market in which TPIs operate, they can be confident in the fact that they are able to secure the benefits offered by the many honest, trustworthy TPIs out there. This will also protect them from the risk of being exploited by an unscrupulous one.

A set of standards being applied to the industry, similar to those found in the financial services and insurance sectors, is crucial to providing the best possible protection for businesses. Ahead of any official action by Ofgem to lay down these concrete guidelines, it is up to the TPIs themselves to ensure that they act within the voluntary Code of Practice and in the best interests of their customers, as well as service users knowing what to look out for.

Many in the industry, including Love Energy Savings, are calling for a much more robust code of conduct. We want this to be properly implemented and enforced by Ofgem, as part of concrete regulation that ensures TPIs are properly monitored. With proper checks and balances in place, as well as the ability to sanction those TPIs that unfairly profit at the expense of the businesses they are supposed to be advising, SMEs would be better positioned to safely secure the benefits that an expert TPI is able to offer. Until that point, however, businesses should ensure that, while remaining open to working with a TPI, they are aware of the possibility of a rogue TPI costing them more than they would save. With Ofgem’s recent announcement that they will no longer pursue official regulation for the TPI industry, at least for now, this is even more important.

Using the advice that we have provided here, businesses should be able to safeguard against that risk and ensure that they are able to find a partner that can save them money as well as provide expert advice on the critical business issue of energy.

Summary 16

• The TPI market is unregulated by industry watchdog Ofgem, meaning that businesses are reliant on the industry policing itself, as well as their own research and knowledge, to ensure that they partner with an honest and reliable TPI.

• While this can leave some businesses unwilling to engage with TPIs, the benefits of using one are clear: with energy bills being one of the biggest overheads for some organisations, the expertise of a TPI can deliver key savings to invest elsewhere in the business.

• SMEs can often find themselves on tariffs far higher than those available elsewhere, with savings on average of over £1,386* a year (based on Love Energy Savings data) available to those which take the time to research alternative options and switch tariffs, or who use a TPI to do so on their behalf.

• Look for content from a particular TPI which you are considering that displays their expertise in the marketplace, as well as other indicators, such as online reviews, media profile and the use of a transparent price comparison service to gauge their level of trustworthiness.

• Using a TPI provides businesses with expert support and advice as well as savings on their energy bills, along with freeing up staff time which would otherwise be spent on researching and switching energy tariffs.

• Now that Ofgem have officially shelved efforts to bring formal regulation to the TPI market, Love Energy Savings is calling for greater transparency across the board in an effort to ensure that all SMEs which choose to use the services of a TPI receive a high level of service and support.

Summary 17

* £1,386 is the average saving made through Love Energy Savings across 109,438 meters (from date of inception to 26.01.2017)

Glossary 18

Please find below a brief list of the acronyms you may come across, both in this report and in your company’s dealings with a TPI:

Climate Change Levy, a tax on energy charged to non-domestic customers in the UK, designed to incentivise energy efficiency and reduce carbon emissions

Letter of Authority, a letter required by your TPI in order to deal with both, your existing energy supplier and potential new suppliers on your behalf

Office of Gas and Electricity Markets, the Government regulator for electricity and natural gas markets in the United Kingdom

Third Party Intermediaries are organisations that provide advice on energy-related matters for businesses, aimed at helping you to reduce costs or manage your energy use more efficiently

Renewables Obligation, an obligation placed on energy suppliers to source an increasing proportion of their energy from renewable sources, providing one of the main support mechanisms for large scale renewable energy projects in the UK

Refers to kilowatt, megawatt and gigawatt hours. kWh measures the amount of energy produced by a generation source or used by an electrical device, and is generally used for billing purposes, while kW measures the speed at which energy is consumed. As a rough guideline, a 100kW lightbulb will consume 1kWh of energy if left on for a 10- hour period

Feed-In Tariffs are paid to small scale renewable energy producers as part of a Government scheme to encourage green energy generation

CCL

FiT

LoA

OFGEM

RO

TPI

kWh/MWh/GWh

AboutLove Energy Savings

Formed in 2007, Love Energy Savings has performed over 114,000 switches, saving homeowners and businesses over £70m on their energy bills. Love Energy Savings works with all major and independent UK energy suppliers and its dedication to transparency ensures that customers are able to secure cheaper prices for their electricity and gas.

The company is rated 5 stars by their customers on Trustpilot, listed amongst the Sunday Times Tech Track 100, which ranks the UK's leading technology companies, and was awarded an international Golden Bridge Award earlier in the year.

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