As the talk about regulation of energy brokers/consultants rages on it remains unclear when regulation will eventually arrive, the form it will take and who it will cover. Rather than wait for regulators businesses can take the initiative themselves by implementing some simple steps during the negotiating stage to avoid common pitfalls of energy tenders. Here is how to tackle one of them writes Ben Dhesi, founder and head of energy management, Pulse Business Energy.
Analysis of supply quotes that look cheaper than they actually are:
A major difficulty facing the industry at the moment is that quotations (particularly for electricity) are quite complex and flexible quotes more complex still. Costs such as government levies, commodity charges (in flexible quotes) and network costs (if pass through) are all open to speculation by the supplier/broker in a tender. So when comparing quotes all you’re really doing is comparing the “forecast” of these costs by the broker or supplier. Often the winning tender will be the one who let’s just say took the “most positive” forecast option. Six or seven months into the contract when you realise that you’re well above your expected budget you will find out the hard way the cheapest quote was not actually the cheapest quote, but simply the most positive forecast. This is also an issue if you’re seeking to appoint a broker through an interview process as this often requires you to evaluate claims of “savings” that can be made.
How do you remedy this?
It’s quite simple and this is where businesses/end users can take control. You almost always give a supplier/broker a letter of authority when acting for you. Although a supplier probably won’t accept anything you give them or that’s not on their standard terms, the broker will usually always be willing to sign a letter of authority that you provide them. In the letter of authority you need to make the following clear:
- That you will be relying on the quotations and forecasts when making a decision and that these forecasts will be used to create internal budgets so the forecast must be done with reasonable skill and care based on information in the market at the time.
- The broker must acknowledge that he understands this and warrants to compensate you for any loss or damage caused by information that is not accurate.
If correctly drafted this then creates quite solid foundation for legal remedies against the broker in contract law using well established principles of misrepresentation, breach of contract/warranty. Other tips when doing this, (which is good practice any way), will be to:
- Ensure the letter of authority is signed by a Director of the broker company (call the Director personally as well). If they refuse to sign then that should help in your decision to appoint or not appoint them;
- Credit check the broker. Many smaller start up brokers and small consultancies may not be around to enforce a claim against so the letter becomes a paper tiger.
These steps could be just as effective as regulation as this process effectively allows you to directly regulate your broker’s activities to suit your individual needs. That is something blanket regulation could struggle to achieve. It’s not just limited to forecasting but fees, service and losses from not serving termination can all be covered by this process.
Ben is a qualified solicitor and began Pulse in 2008. Pulse is seeking regulation from the Solicitors Regulation Authority (SRA) to provide general legal advice on energy contracts. It would become the first SRA regulated energy consultancy in the UK.