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Energy Auctions May Not Be “Free”
Energy consumers are realizing significantly inflated energy supply costs, up to 25%, a function of non-disclosed & hidden upcharges built into the energy supply prices garnered through some “free” on-line natural gas and electricity energy auctions.
Hidden Upcharges Embedded in Energy Auction Prices
The crux of the problem – claims from some auctioneers that their services are of ‘no-cost” to consumers because their revenues are generated from fees “paid’ by bidding energy suppliers. This phraseology creates an out-of-context rationale for energy consumers to use an energy auction – no cost, no risk – all at the expense of participating energy suppliers. This is word gaming designed to keep energy consumers in the dark about how energy auctions actually generate revenue.
Their revenues are not generated from suppliers paying for access to the auctions. What the auctioneers mean by “no cost” is that the posting and administration of on-line auctions is free. What is not explained is that energy consumer acceptance of the offers garnered through the auctions triggers and finalizes a pre-negotiated exchange of revenues from the energy suppliers to auctioneers. Most importantly, what energy consumers aren’t told is that the source of the revenues comes from hidden upcharges embedded in the energy supply prices procured through the auctions.
There is no upfront cost to energy suppliers to submit offers into auctions. Think about it. Why would energy suppliers pay to participate in auctions that they might not win? They don’t. If they did, this would mean that they set aside vast amounts of financial resources that they may never recover – just to participate. They don’t do that either. Energy suppliers are not stupid.
How Upcharges Flow Through Energy Auctions
Prior to the start of the auction, auctioneers will indicate to the energy suppliers the amount of the “participation fee”. To account for this, energy suppliers build the fee costs into the natural gas or electricity supply offers they submit into the energy auctions. This means that these “fees” are actually upcharges added to energy suppliers’ true (and lower) energy supply costs. As referenced previously, it’s the acceptance of the energy supply prices offered through energy auctions that secures the fees for the auctioneers.
This same offer acceptance cements the energy consumer upcharge costs. The flow of money to auctioneers from energy consumers commences when energy consumers are invoiced for energy supplies from the winning energy suppliers. Energy consumers pay the energy supplier invoices, with the billed prices inclusive of the upcharges. Next, the energy suppliers bank the revenues associated with their true energy supply prices, pre-upcharge. Then, energy suppliers disburse the remainder of the collected revenues (billed volumes x the upcharge) to the auctioneers. In essence, energy suppliers are the billing agents for these auctioneers.
This is how these auctioneers self-justify that they are telling the truth when they claim, “our fees are paid by the suppliers”. This is word gaming based on half-truths intended to veil the undisclosed transfer of energy consumer money to the auctioneers via energy supplier invoices.
Energy Auctions Determine The Upcharges
Auctioneers set their own fees. To say it differently, they self-determine how much revenue will be extracted from energy consumers that accept the offers posted into the auctions. These “fees” are unchecked by energy consumers because they are unaware of their existence. The result – fee abuse – with upcharges amounting up to 25% of the total energy supply price, and 100% of the upcharge cost burdened to participating energy consumers.
Some auctioneers require auction-winning energy suppliers to front the total term upcharge value (of awarded energy supply contracts) upon acceptance of offers. Therefore, energy suppliers have to account for interest expenses and costs of capital employed in their auction offers.
This leads to additional energy price inflation.
What You Can Do
If you don’t believe me, ask energy suppliers that you know to explain how it works. If you ask a supplier that was awarded your energy supply contract through auction, don’t be surprised if you are offered a response like, “how this works is between you and your auctioneer.” Agenda conflict is a possible motivator behind a like-response. As a side, a deflection tactic used by the auctioneers, when questioned about hidden upcharges, is to play dumb. They act as if they have no idea how the energy suppliers cover the costs tied to energy auctioneer fees. They should know how it works, though. Many of these auctioneers employ people with retail energy supply business backgrounds.
If you are considering engaging an energy auction to compare energy prices, think about what you are willing to pay for the service, and ask the energy auctioneer thing like:
1) What is the cost to use their services?
2) What is the cost to energy suppliers to participate in the auctions?
3) What is the total cost of the upcharges embedded into the energy prices garnered through the actions?
4) Would they be willing to enter into a three party disclosure agreement (between the energy auction, the consumer, and the supplier) that contractually obligates the parties to a set upcharge?
Don’t be afraid to create competition between multiple energy auctions. You may be able to better flush out and create competition on the costs associated with energy auctions.
I wrote another blog the explore the use of “double-dipping” tactics employed by some auctioneers and energy brokers to extract additional revenue sources from energy consumers.