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Broker to Broker Outsourcing Leading to Fat Energy Supply Prices
Energy consumers getting fattened energy supply prices from energy brokers.

Energy Consumers Paying Twice for “Free” Energy Brokering Services

Did your energy broker outsource the brokering of your natural gas and electricity supply deals to another energy broker? If this is the case, you can bet that your natural gas and/or electricity supply prices are significantly over-inflated. Most energy consumers that engage energy brokers are unaware that broker-to-broker outsourcing occurs, let alone understand the significant inflationary impact it has on their energy supply costs. This blog exposes this practice and explains how it leads to exorbitant energy supply price escalation.
 


 

For this blog to make sense, you need to invest in understanding the basic broker business model.
 
Despite inferences that their services are of ‘no cost to you’ because their compensation stems from “commissions” paid by energy suppliers, energy brokers are compensated via hidden upcharges embedded into the natural gas and electricity prices they garner for energy consumers that work with them. Their compensation comes from your bottom line, your pockets – not the energy suppliers’. These hidden upcharges are higher than you could ever imagine. If you don’t believe me, just ask any energy supplier. To understand the basic concepts behind the energy broker model, I would recommend reading a prior blog posting named “How Energy Brokers Manipulate Energy Supply Prices to Embed Hidden Upcharges: Part 1” as an intro.
 
But, that’s not all. Your energy prices might be even more-than-substantially inflated, and you don’t know it. The reason – your energy broker outsourced energy brokering or related services to other another energy broker – without telling you. The consequence – two or more layers of substantial hidden energy broker upcharges embedded into the energy supply prices.
 

The Energy Broker Doesn’t Foot the Bill for Outsourcing – the Energy Consumer Does

Energy brokers that outsource energy brokering either don’t have energy procurement expertise and/or want to spend their time on business development. The argument could be made that this is smart, at least from an energy broker’s perspective. The problem, however, is that the cost-burden of outsourcing isn’t on the energy broker (it doesn’t come out of their pocket) – it’s on the energy consumer, taking the form of another hidden upcharge embedded into the energy supply price. Two energy brokers, two more-than-substantial hidden upcharges, two more invisible bottom-line cost leakages.
 
When this happens, energy consumers end up with significantly inflated energy supply prices. Using electricity as an example, here’s how this looks:
 

Electric Generation Supplier Actual Price:$0.055/kWh
Outsourcing Energy Broker Hidden Upcharge:$0.006/kWh
Third-Party Energy Broker Hidden Upcharge:+$0.006/kWh
Total Price Presented to Energy Consumer:$0.067/kWh

Remember, the energy broker that is doing the energy brokering work doesn’t do it for free. They don’t get paid commissions from energy suppliers either. But more importantly, they are not being paid by the outsourcing energy broker. They use the energy broker hidden upcharge model to generate revenue. The prices that they give to the outsourcing energy broker include their upcharge. Then, the outsourcing energy broker adds their hidden upcharge. The double-up charged price is the one presented to the energy consumer. One service, two energy brokers, two hidden upcharges embedded into the energy consumer’s energy supply prices.
 

The Impact

In the example above, the energy consumer’s price is 22% higher than the Electric Generation Supplier’s actual price. Assuming an annual usage of 7,000,000 kWh, the total yearly hidden upcharge is $84,000. Over the course of a three-year fixed price electricity supply contract, the total hidden upcharge cost to the energy consumer is $252,000. The energy consumer was led to believe that the brokering service was of “no cost to them”. Wrong.
 
Would the energy consumer have agreed to a $252,000 fee if they had known about it? Of course not, because the energy brokering service is not worth $252,000. This is the underlying problem with the energy broker model. Because the true cost of the service is intentionally obscured via hidden upcharges and misdirection about how energy brokers are compensated, the energy consumer is robbed of the opportunity to make their own assessment of the value of the cost of the energy brokering service, let alone two of them at the same time.
 

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-three 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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