Energy firms accused of ratcheting up small businesses bills to pay ‘secret’ broker commissions

Millions of small businesses who have used brokers to negotiate energy contracts could be entitled to thousands of pounds in compensation.

Businesses and other organizations, including local authorities, care homes and charities, have been unwittingly overpaying for energy as prices skyrocket and the government withdraws much of its support.

Law firm Harcus Parker filed a £2bn claim against energy companies in February over allegations that they paid secret commissions to outside energy brokers and high customer bills.

The company currently has around 3,000 claimants, but the no-win, no-fee claim could pay out up to 2 million customers, with an average claim of £20,000 per customer.

Lawyers for Harcus Parker say claims for long-term contracts for heavy energy consumers could potentially exceed £1 million.

With the company claiming that suppliers are evading responsibility and using lawyers to prevent companies from finding out how much they have been charged in undisclosed broker commissions, This Is Money can reveal.

‘Brokers can charge whatever they want’

The use of ‘secret commissions’ between suppliers and brokers is widespread in the energy industry.

An energy broker usually offers to help customers find an energy contract with a supplier, under the illusion that this is the best option for them.

What they are not told is that the broker is paid by the supplier and this fee is added to the customer’s utility bill.

Zoisa North-Bond, CEO of Octopus Energy for Business, told This Is Money: “About 18 months ago, as we went through Covid, we could see brokers taking advantage of the economic downturn by saying they would add value.

“The fundamental problem is that the people who sell contracts are incentivized… they are virtually unregulated as to how much commission they can charge.

The commission varies. A broker woos a small business with special energy deals. They can charge for pretty much anything they want to charge with very little transparency.”

Research from Harcus Parker shows how some energy companies, including British Gas, have allowed brokers to charge commissions of up to 10p/kWh, while other suppliers have no cap on commission rates.

The key is that customers don’t know they’re paying these secret fees – they have to ask the suppliers themselves.

James Hall, a social club manager in Tyne and Wear who has joined Harcus Parker’s claim, told This Is Money his unit cost was originally 32p, but the supplier charged 36p because of the secret commission.

“Knowing that we could have gotten cheaper energy all these years leaves a bitter taste in your mouth. No one likes to be ripped off, not once let alone several years.”

“We were struggling anyway, but this has made it so difficult that it almost went into administration almost eight years ago. It’s not just the energy [bills]but it contributed.’

North-Bond said, “We know [brokers] can pretty much charge whatever they want…SMEs use them because these contracts are bigger than buying a house contract…they think they’re taking advice.’

The energy regulator, Ofgem, is increasingly called upon to take action against the wild west, the energy market.

“There has to be some regulation,” says North Bond. “There has to be something in the point of sale that is very transparent. If you choose to buy it, you know that you are paying x percent more for convenience.’

Suppliers ‘evade payouts by hiding behind regulator’

In another twist, Harcus Parker is now accusing energy suppliers of hiding behind existing regulations to try to prevent companies from finding out how much they owe.

Harcus Parker claims some energy companies are instructing their lawyers to refuse to disclose the amount owed to customers, while others are using new Ofgem rules as an excuse.

Attorneys representing suppliers “have come up with a variety of excuses for not disclosing brokerage payment amounts in an effort to stop claims,” ​​says Harcus Parker.

In December 2022, Ofgem told energy suppliers to tell micro-enterprises how much money will be added to their bills to cover agency fees.

Many energy companies are now arguing that companies and organizations that do not fall into this category of micro-enterprises – meaning they employ fewer than 10 people – have no right to be told how much their bill has increased because of secret brokerage fees.

Harcus Parker said: ‘The fact that Ofgem has introduced a new scheme to increase the transparency of brokerage fees and that this is now being used as an excuse by energy companies not to tell customers information about their account is laughable.

Ofgem has been aware of the problem of hidden brokerage fees since 2013 and has failed to address this bad practice.

‘All customers have the right to know how much of their energy unit cost consists of intermediary costs. The energy regulator must get a grip and make it clear to energy companies that this information must be released.’

A spokesman for Ofgem told Is Money: ‘If a company is a micro-enterprise within the meaning of the permit conditions, and its energy supplier does not recognize this, then the company should raise this with its supplier.

Ofgem expects all suppliers to comply with their licensing terms. Where necessary, we take action to ensure that suppliers comply with our rules.’

The most baffling thing about this approach is that, should the claim go to court, the suppliers would still have to release the information.

Meanwhile, they are under pressure from other claims, including that of Sacha Lord, Greater Manchester’s overnight adviser, who said this week he had engaged JMW Solicitors to recover hidden commissions.

“We are about to recover money they forcibly paid. A national scandal that we think could be as big as the PPI scandal,” he said.

Most companies now just want to go back to normal. It couldn’t have come sooner for social club manager James Hall.

“Any money we can get back is money for the club,” he said. “We’ll be able to return it to the members in some form, maybe by freezing the prices for the community… It would be good to get the money back.”