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A Key to Top-Notch Energy Procurement: Avoid Biased Energy Buying “Advice”

I consistently find that energy consumers base their decisions on how to buy energy on recommendations from energy suppliers or energy brokers. They say to themselves, “They are the experts. They know what’s best.”
 
Here’s the problem. Energy buying “advice” from energy brokers or suppliers can be compromised, leading to increased energy supply costs and inflated business risk for consumers.
 

 
Energy buying “recommendations” are compromised when there are hidden agendas. The hidden agendas of energy suppliers and energy brokers typically revolve around two issues – competition and margin appetite.
 
A way for energy suppliers and brokers to overcome these issues is to influence the buying behaviors of consumers. In other words, they will steer energy consumers to take actions that satisfy the hidden agendas. What energy consumers don’t know is that these hidden agendas can be in conflict with their goals. Here’s why. Agenda-driven advice that is purposed towards margin uplift directly translates into higher energy supply costs for the consumer. When agenda-driven advice is designed to overcome competitive obstacles, energy suppliers or brokers may give consumers perspectives that are biased towards their supply-price or “consultative” offerings. The result – the adoption of buying strategies by consumers that are disconnected to the true realities of the energy marketplace (i.e., increased business risk).
 
These dynamics are in play in both the natural gas and electricity supply arenas.
 
The table below includes a sampling of tactics employed by energy suppliers and brokers, by issue, to advance hidden agendas – and the associated consequences for energy consumers.
 

 

ParticipantProblemInvisible
Agenda
Participant
Behavior
Result for Energy Consumer
Energy SupplierCompetitively disadvantaged in a "fixed" price environmentImprove chances of winningSteer energy consumer to variable price contractMisaligned energy buying strategy, cost leakage
Energy Supplier or Energy BrokerCompeting energy suppliers or brokers are recommending a variable price strategyAttain market differentiationSteer energy consumer towards a fixed price contractMisaligned energy buying strategy, cost leakage
Energy Supplier or Energy BrokerCompetition from other energy suppliers or energy brokersEliminate competitive exposureSteer energy consumer towards a three-year fixed price contract, regardless of fundamentalsPotential for missed opportunities in downward moving market
Energy Supplier or Energy BrokerWants to enhance margin / upchargesCreate transactions to get margin / upcharge upliftStep 1: Steer energy consumer to variable priced contract

Step 2: After contract commencement, recommend a "lock-in"

Step 3: Manipulate hedge prices to increase margin
Misaligned energy buying strategy, cost leakage

Question: Do you know if an energy supplier or energy broker has influenced how you buy energy based on a hidden agenda?
 
About Brad Foster
 
Brad is the founder of Foster LLC. He helps executives and business visionaries realize corporate objectives through customized strategies, services, and solutions designed to navigate the challenges of energy and utility cost management.
 
Mr. Foster has been providing energy expense solutions to U.S. businesses for twenty years. With a multi-dimensional understanding of a number of energy-related issues, his expertise has been utilized by manufacturers, universities, and hospitals. His know-how and experience spans a wide array of energy issues, including cost risk management, supply procurement, utility rates, demand response, cost reporting, and budgeting.

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