This is how the scam works:
(1) A salesperson approaches a member of your staff, such as an accounts manager or financial controller, offering to reduce your utility costs and make no charges for his services.
(2) He then asks your staff member to sign a letter of authority, telling him that he will get better prices for gas, electricity or water and report back to the manager.
(3) The letter of authority gives the salesperson the legal right to terminate all your existing utility contracts and to sign new contracts on your behalf.
(4) He then does a deal with one of his favoured suppliers, terminates your existing utility contracts and signs up your organisation to new long-term contracts for gas, electricity or water services. The ones we have seen are for 3 or 5 years.
(5) The energy costs on these contracts are between 50% and 300% above market prices. In one case it will cost the organisation an extra £250,000 over 5 years. In another it will cost that business an extra £60,000 over 3 years.
(6) This is easy money for the salesperson since these excess charges make up his commission payment, which he usually gets paid up front. The excess charges are normally hidden within the cost per kWh of energy and the cost of your water services.
(7) To make matters worse, some brokers also charge for “extra” services, while these services are done at no extra cost as part of our comprehensive utility management service. For example, we often find overcharges in incoming utility bills and work hard to have the suppliers correct their invoices and provide you with rebates or credits. In our experience, brokers normally charge you for 50% of the rebates. Furthermore, if a broker helps you to reduce your charges by arranging for a meter to be downsized, he may charge you for this. We do not charge for such work.
As independent utility consultants we take no commissions from any suppliers and hence have no conflicts of interest. We are open and transparent about the fees we charge for the expert advice and management services we provide. We only work for you, not for suppliers.
We are currently helping organisations to extricate themselves from such scams. This will involve the use of lawyers who specialise in this type of work. Hence, it may be costly.
Please warn all your staff not to sign any letters of authority or contracts with brokers.
To protect yourself, issue instructions to all staff stating that they are not authorised to sign any contracts or letters of authority on behalf of your organisation, and state that only directors (or equivalent) are authorised to sign agreements with suppliers. Additionally, you could include this as a clause in their contracts of employment or operating manual.
We hope this warning will help you to avoid such scams from unscrupulous brokers and therefore avoid a lot of additional cost and hassle.
However, if this does happen to you, we can help. If you want to discuss these matters, please contact your consultant or any member of our senior management team.