IoD Midlands Spring

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Keep up to date at www.iod.com/westmids and at www.iod.com/east-midlands Technical briefing: Energy and 5G Buyer beware: there are sharks in the energy market Is your business looking to sign off on a new energy contract? Before you do, read this cautionary tale, as told to the IoD by Liam Conway, Head of Business Development at Control Energy Costs. A number of businesses have complained that they have been mis-sold energy contracts. Unfortunately, due to lack of regulation within the industry, it is very much a case of buyer beware. This example concerns a member of IoD West Midlands. We are unable to name the company, but the FD was keen for the story to be shared and to ensure others did not fall foul of such blatant mis-selling and misrepresentation. The FD of the business would also be happy to talk this through on an IoD webinar session with other directors. Liam met with the finance director of the business which operates a single site heavy manufacturing facility in the Black Country and spends in the region of £500,000 pa on energy. The FD expressed concern at the recent energy invoices they had received, which were significantly different to those that had been ‘sold’ to them. Although this was arranged before the FD’s tenure, the company was keen to explore what had gone wrong as the impact to them in terms of budget was significant. Liam uncovered that this business had been mis-sold a pass-through contract by an energy broker. The business had been approached by this energy broker who proceeded to send them numerous letters of authority (LOAs) to sign. Letters of authority are legal documents that enable a third party to act on your behalf. The letter of authority, once signed, gave the broker the ability to sign contracts on their behalf and extend them multiple times. Pass-through contracts A pass-through contract is one that covers just the energy element of the bill. This typically only accounts for around 40% of charges, with the additional transportation, distribution, taxes, and levies all passed through at cost. Any proposal you are given based on a pass-through contract might represent good face value, but it is only covering a percentage of the total you will need to pay; you need to understand the consequences fully. There is nothing wrong with a passthrough contract, however, unscrupulous energy brokers use them as a way of hiding increased commissions within the unit rate. Significant increase in energy costs In this case, the business had unwittingly signed a pass-through energy-only contract and, due to hidden commission within that proposal, saw significant increases in energy costs. The broker in question refused to disclose the amount of commission that had been built into the contract. The broker also continually extended the contracts by six months as soon as the opportunity arose, and the chosen supplier allowed them to do so. This was done again to maximise their gain, not in the best interest of the client. The energy broker has a fiduciary obligation to act in the client’s interest this is a typical example where they are lining their own pockets rather than providing worthy advice to the client. Hidden commission To put some context to this, the broker had hidden circa £100,000 per annum of commission across both electricity and gas. They extended all contracts to five years, so took virtually £500,000 in hidden commissions over the contract term. As the business had been misrepresented at the point of signing the contract, they only became aware of this when the contract started. We were clearly able to demonstrate to them the likely commission built in by showing where the market was when they signed, versus the rates secured. This is broadly 20% of the business’s energy costs going straight to the broker! It would vary depending on the services provided, however, a fair and transparent broker would likely earn 2- 5% of energy costs. Conclusion While by their own admission the business should have been more aware of the ‘salesmanship’, this example is a £40m t/o business so not lacking in commercial awareness. The point being if they can be ‘hoodwinked’, anyone can, as the energy brokers in question are slick in their operations. We are keen to highlight the issues and while we would love nothing more than to name and shame a number of the larger prolific offenders, it’s difficult to do so publicly, so our approach is to educate as many businesses as possible so they don’t 18 www.iod.com/emidlandsevents
fall foul of the tactics. KEY QUESTIONS TO ASK If you are approached by an energy broker, ask the following questions: Are their fees transparent? The vast majority of energy brokers will be earning a commission that is built into the supplier proposal they are recommending you accept. If their fees are truly transparent, you should know what that rate is. There is no such thing as a free service although there are many energy brokers who will market themselves on this basis. Do they offer good value for money? A good energy broker will have a document that explains what services they are providing. Think about these services in the context of the commission they are earning and consider whether it is appropriate to the support they provide. Research who works for them and what relevant experience their key people can offer. Lots have energy experience, but relatively few have the expertise to deliver specialist tasks your business may require. If they are earning a reasonable commission, at the very least you should have a dedicated point of contact and access to a variety of reporting functions. How much commission have they earnt from me in the past 12 months? If you are working with an energy broker who is completely transparent about their fees, ask them and they should be happy to tell you. Alternatively, ask them to confirm the annual consumption (in kWh) across your portfolio and their commission rate so that you can work it out for yourself. The figure may surprise you. Do they do anything other than contract renewals? A good energy broker should be providing a holistic service looking at all aspects of your energy and water expenditure and any energy-related matter and leave you feeling confident that you are in safe hands. If that is not the case, something is wrong. When did you last benchmark your arrangements? In running a business, you will have lots of priorities and it is often easier just to leave things as they are. Not looking at alternatives could be costing you more than you think. You can talk to Liam about this and other energy matters on 01737 556631 or see cec.uk.com. 5PRING and Ferrovial challenge innovators to help lead 5G revolution 5PRING – the consortium delivering the UK’s first 5G commercial application accelerators – has partnered with leading global infrastructure operator Ferrovial to launch a new challenge for innovative start-ups and small businesses to shape the future of the construction sector. With construction output in the UK valued at more than £110 billion, accounting for 7% of GDP and employing around 10 million people, the sector is well positioned to benefit from the impact of deploying 5G solutions to increase efficiency and optimise processes such as asset monitoring, as well as reducing costs and emissions. The Future of Construction challenge will provide start-ups and other small businesses with support in developing and scaling innovations targeted at the construction sector which harness the power of 5G to create a safe, dynamic and efficient construction industry, with a specific focus on: • Health & Safety and security • Logistics and site operations Applicants with 5G-enabled solutions which leverage augmented reality, computer vision, IoT, artificial intelligence and machine learning, and robotics, and are still relevant to the construction sector, are also encouraged to apply. The Future of Construction challenge offers successful companies access to cutting-edge technology via a private 5G network, a tailored acceleration programme, as well as coaching, mentoring and expertise provided by experts from Ferrovial and the 5pring consortium partners Telefonica UK (O2), Deloitte, Wayra and Digital Catapult. Javier Vaca de Osma, technology and processes director at Ferrovial Construction, said: “5prinG will give Ferrovial the opportunity to explore 5G potential to leverage innovation for our businesses by accessing a new ecosystem of startups and disruptive solutions. “With this partnership we are looking to foster the digitisation of our construction sites integrating, through 5G, technologies such as augmented reality, edge computing or IoT systems to boost efficiencies while ensuring the safety of our working environments. 5prinG will allow us to identify and test cutting-edge solutions on a real test-bed of innovation.” Last year, West Midlands 5G (WM5G) and partners O2, Deloitte, Digital Catapult and Wayra announced the launch of the UK’s first commercial accelerators – 5PRING – to develop the first region-wide 5G testbed. Robert Franks, Managing Director at WM5G, said: “It is through partnerships such as those that 5PRING is developing that we will truly be able to understand the real potential that 5G has to revolutionise the UK’s major industries. The guidance and expert advice that our 5PRING teams can provide both virtually and through our dedicated Accelerator hubs in Coventry, Wolverhampton and Birmingham are leading the way. “Ferrovial’s decades of experience will be vital in helping to shape and guide the innovative solutions that we are hoping to see delivered through this programme, transforming their ambitions into reality.” Applications for the accelerator are now open and should be submitted by midnight on the May 14, 2021. Successful applicants will start working with 5PRING from July 5, 2021. For participation in the Incubator, registration should be submitted by the May 7, ready to start on the May 10. A series of engagement events will run throughout the 5PRING programme known as Engage, Explore and Exploit. For more information, visit: https://5pring.org/ www.iod.com/westmids/events 19
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IoD Midlands Spring

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