Gas and electricity bills are some of the biggest expenses that businesses face. Whilst they can’t be avoided, there’s something to be said for being meticulous when reviewing your business energy contract to make sure you’re getting the best deal.
Business energy contracts can often be complex to navigate, but understanding the intricacies of the agreement and exactly what you’re signing up for is the key to saving costs. If you’re using an energy broker to do the deal for you, you’ll want to be even more diligent before signing on the dotted line.
Whilst energy brokers play a crucial role in making this process a little easier, they don’t always act in good faith. They’ve been known to hide undisclosed commission fees within contracts which can lead to inflated bills and financial strain.
Ultimately, this is something that we want to avoid so in this blog post, we’ll talk you through the ins and outs of reviewing your business energy contract and understanding hidden fees so you can avoid potential pitfalls and make informed decisions.
Understanding the different types of contract
When renewing your business energy contract, there are a few different options to choose from. Depending on your budget and energy usage, some may be more suitable than others. The different types of business energy contracts are:
Fixed energy contracts
Also known as retail energy contracts, these operate under a fixed tariff per kilowatt hour (kWh) which means that the unit rate remains constant throughout the duration of your contract.
Your bills will vary depending on how much energy you use, but this typically works out as the cheapest type of contract as it isn’t affected by rising prices. However, on the other side of this, you also won’t benefit from any falling energy prices.
Variable energy contracts
Variable energy contracts don’t lock you in, meaning you’re free to leave whenever you want with no exit fees.
However, they can make it difficult to gauge how much your bills will be as the price changes depending on current market conditions i.e. if the price of energy increases, you’ll pay more and vice versa.
You’ll often find yourself in one of these if your current contract ends before you can take out a new one. This is typically a temporary solution with a 28-day notice period so you can switch to any other contract when you find one, but it means you’ll be paying the most expensive rates in the short term.
Flex approach contract
For larger businesses, purchasing their energy in bulk in advance may be a cost-effective option. With a flex approach contract, you can take advantage of any current low market rates and buy your energy for months or years ahead.
This can be risky and requires more planning about the energy you’ll use, and could also leave you out of pocket if energy costs were to drop after you’ve already purchased.
Deemed energy contract
Similar to the out-of-contract option, deemed contracts are offered when a business relocates and hasn’t acquired a new contract yet. They have a 28-day notice period and typically inflated rates to get you paying more.
Rollover energy contract
This is used when your contract comes to an end and the supplier automatically rolls you into a new contract for the next year. This will typically cost more than your previous contract.
What to look out for in your contract
Even if you’re going with the same energy provider you were previously with, it’s important to take the time to read through your new contract and understand what’s in it.
The basics of any business energy contract include the following:
- The start date of your contract and the full length of the agreement
- The service you will receive
- The pricing and rate structure
- Terms and conditions relating to terminating the contract
- Additional fees or charges that may apply
- Cancellation fees
Fully understanding your agreement and being aware of the terms and conditions involved in what you’re agreeing to can help you get the most out of your plan, and prevent any additional charges or hidden surprises later on.
Make sure that everything from the contract duration to the pricing structure lines up with your financial budget and requirements, and don’t be afraid to query anything that you don’t understand or doesn’t look quite right.
Understanding pricing structures
Energy pricing can be complex, with many different components contributing to the final bill. We’ve discussed the different types of contracts above, and your pricing structure will relate to which one of those contracts you’ve taken out i.e. whether you’ll be charged the same unit rate each month or if it will depend on when/how much you use.
Different energy providers will have different payment structures, but it’s essential to understand the pricing plans outlined in your contract because this is where the commission structure is hidden.
Typically, energy bills consist of unit rates, standing charges, and additional fees. Be wary of contracts that have overly complicated pricing models as this can be used to conceal hidden commissions. Make sure to get clarification from your broker on any commissions you suspect and if the pricing structure seems convoluted, get in touch with the provider or consider consulting with an energy advisor for clarification.
Avoiding undisclosed commissions
Energy prices are a considerable fee for businesses alone, but for those who have fallen victim to undisclosed energy commissions in the past, this only heightens the financial burden.
Whilst recent regulations brought in by OFGEM state that brokers must carry out any actions in a fair, honest and transparent manner, it’s still important to do your due diligence on any energy broker you work with.
To ensure transparency and fairness in the broker-client relationship, you should:
- Do your research on the broker and look for a reputable broker
- Ask openly about the commission they are receiving from your contract and see if they are disclosing it
- Carefully review the energy contract to ensure there are no hidden commissions or fees
- Get quotes from multiple energy providers to compare prices
- Consider getting legal advice if you’re not too sure about any area of your contract
What to do if you fall victim to undisclosed commissions
In the event that you do suspect you have been trapped into paying hidden commissions to your broker, FDM Solicitors can help.
We specialise in pursuing business energy claims on your behalf, on a no-win no-fee basis. If you meet the business energy claims criteria, we can initiate the claims process and negotiate with energy suppliers or brokers on your behalf, to secure a fair settlement.