Energy consumers that execute “Authorization of Agent” agreements with energy brokers are putting their businesses at increased risk for significantly inflated energy supply prices.
Energy brokers ask energy consumers to sign “Authorization of Agent” agreements under the pretense that energy suppliers require written documentation that allows energy brokers to engage energy suppliers on behalf of energy consumers. While it is true that energy suppliers normally require this authorization before interacting with an energy brokers on the behalf of energy consumers, there is more to the story – a lot more.
Energy brokers use “Authorization of Agents” to maximize hidden upcharges at the expense of energy consumers.
One of the tactics energy brokers employ to increase their appeal to energy consumers is to create the perception that energy consumers have no risk when “engaging” energy brokers. First, energy brokers normally don’t ask energy consumers to sign agreements to engage their services. Therefore, from the energy consumer standpoint, there is no apparent contractual liability. Second, energy brokers claim that energy consumers are under no obligation to accept the energy supply offers that energy brokers present to energy consumers. No agreement, no obligation, no risk.
But, energy brokers will ask energy consumers to sign “Authorization of Agents.” These “Authorizations” permit energy suppliers to talk to energy brokers on the behalf of energy consumers. As referenced above, energy suppliers do require this documentation. Believing that there is no risk to their business, and excited about the opportunity to get multiple energy quotes at “no cost to them” (see Energy Broker Myth # 1: “There is no cost to you”), energy consumers sign “Authorizations of Agents” without fully exploring the significance of the language in the “Authorization”. It is this misstep that leads to increased business risk that takes the form of significantly inflated energy supply prices, the result of hidden energy broker upcharges added to energy supplier’s actual (and lower) energy supply prices (see the “Energy Broker Myths” page on this website to learn more).
The “Authorization of Agent” agreements I’ve seen have two parts. Part I includes the authorization for energy brokers to engage energy suppliers on the behalf of energy consumers. Part II (and sometimes Part II is literally in “fine print”) includes language that indicates that the energy brokers are the “exclusive” representatives of the energy consumers. The significance of Part II is misunderstood by energy consumers. Casually, energy consumers accept the “exclusivity” without realizing the consequences attached to the language.
Why does this happen? First, energy consumers are under the false impression, a function of the “no-risk / no commitment” sales pitch of energy brokers, that there is no risk to sign the “Authorization of Agent.” In essence, they are lulled to sleep by the sales pitch. Second, at the time they sign the “Authorization”, they have no foreknowledge that they may want to consider the services of other energy brokers or energy supply consultants.
Here’s the problem. By signing an “Authorization” that has “exclusivity”, an energy consumer has, in essence, entered an agreement with an energy broker. Although an energy consumer is under no obligation to accept the energy supply offers presented by an energy broker, the energy consumer is exclusively tied to the energy broker, per the “Authorization”.
Energy brokers want “exclusivity”. Energy brokers view “exclusivity” as a contract with energy consumers. Once an “Authorization” with “exclusivity” is signed, energy brokers operate under the premise that energy consumers cannot engage other parties to solicit energy supply offers from energy suppliers. I have experience with this. I have seen energy brokers claim that they have been “harmed” by energy consumers that engaged other energy brokers or energy supply consultants after an “Authorization” with “exclusivity” was signed with another energy broker. The point – energy brokers view “Authorizations” with “exclusivity” as contracts. Energy brokers will hold energy consumers to “exclusivity” and may attempt to pursue “damages” if the exclusivity has been violated.
Next, energy brokers use “exclusivity” to influence energy supplier behavior. When energy suppliers receive an “Authorization” with “exclusivity” from energy brokers, they interpret the “exclusivity” to mean that, under no circumstances, should they provide energy supply offers to other energy brokers or energy consultants. This means that other energy brokers or energy supply consultants that energy consumers engage will not have access to energy supply offers from these suppliers.
Energy brokers desperately do not want energy supply suppliers to provide energy supply offers to other energy brokers or energy supply consultants. Why? It’s all about maximizing the hidden energy broker upcharge.
Look at the following example:
Energy Broker A provides ABC Manufacturing Co. an electricity supply price from XYZ Energy Supply Company of $0.080/kilowatt-hour (kWh). XYZ Energy Supply Company’s actual (and lower) electricity supply price is $0.060/kWh.
Energy Broker B provides ABC Manufacturing Co. an electricity supply price from XYZ Energy Supply Company of $0.075/kWh. XYZ Energy Supply Company’s actual (and lower) electricity supply price is $0.060/kWh.
Same energy consumer, same electricity supplier, different energy broker supply price.
Why? Because the hidden energy broker upcharge added to the energy supply price from XYZ Energy Supply Company by Energy Broker B is lower than the hidden energy broker upcharge adder of Energy Broker A. In Example 1, the hidden energy broker upcharge is $0.020/kWh. It is $0.015/kWh in Example 2. ABC Manufacturing Company would award the business to Energy Broker B, to the dismay of Energy Broker A.
By creating exclusivity, energy brokers eliminate competition from other energy brokers and energy supply consultants. This way, they don’t have to compete on compensation with other energy brokers or energy supply consultants. Using the example above, Energy Broker B would not have access to pricing from XYZ Energy Supply Company. Consequently, ABC Manufacturing Co. would not have access to Energy Broker B’s lower offer.
And that’s the point. Energy brokers don’t want to compete on compensation. That way, they can maximize their fees, all at the expense of the energy consumer.
Energy brokers use a two-pronged approach to avoid fee competition. With the energy consumer, the goal is to mask the existence of hidden energy broker fee upcharges (see “Energy Broker Myth # 1: “There is no cost to you“ and Energy Broker Myth # 2: “My fee is paid by the supplier“). When energy consumers don’t know about the existence of energy broker upcharges, by default, energy consumers don’t know how much those upcharges are. Therefore, energy consumers cannot create energy broker on energy broker/energy supply consultant compensation competition. This is a win for energy brokers and a loss for energy consumers.
Then, energy brokers use “exclusivity” in “Authorizations of Agents” to gain sole access to energy suppliers with the motive of insulating themselves from possible competition, with the purpose of ensuring that their hidden energy broker upcharges will be maximized. Again, a win for energy brokers with “exclusivity” and a loss for energy consumers.
This two-pronged approach creates a total win for energy brokers. Energy brokers set their own upcharges. By eliminating compensation competition on both the energy consumer side and the alternative energy broker/energy supply consultant side, energy brokers are free to set their hidden energy broker upcharges as high as they want. This is why there is energy broker upcharge abuse. This is why energy consumers lose when they engage energy brokers. The loss for energy consumers takes the form of significantly inflated energy supply prices, the function of undisclosed and outrageously high hidden energy broker fee upcharges to energy suppliers’ actual (and lower) energy supply prices. The higher the hidden energy broker fee upcharge, the higher the energy supply price for the energy consumer.
The “Authorization of Agent” with “exclusivity” is an integral part the hidden energy broker fee scheme. Energy brokers use “Authorizations” with “exclusivity” as a way to secure a “contract” with energy consumers while at the same time suggesting to energy consumers that there is no “contract”, and therefore, “no-risk”, to engage the services of energy brokers.
If you don’t believe me, ask any energy supplier.