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Energy Broker Myth # 4: Energy Brokers are “Channel Partners”

“Energy Broker Myths” 1 through 3 introduce tactics that energy brokers use to mask the fact that they add upcharges to energy suppliers’ real (and lower) energy prices. Consequently, energy consumers that engage energy brokers realize significantly inflated energy prices, the result of hidden, embedded, and outrageously high energy broker upcharges. These tactics are outlined in the following posts:
 
Energy Broker Myth # 1: “There is no cost to you”
Energy Broker Myth # 2: “My fee is paid by the supplier”
Energy Broker Myth # 3: Energy Brokers Are Energy Consultants
 
Energy brokers use another creative tactic to avoid upcharge disclosure. This tactic is designed to create the perception that there is no cost to the consumer to engage the services of energy brokers by advancing the notion that they are paid “commissions” by energy suppliers. They do this by claiming that they are “channel partners” to energy suppliers (for a more in-depth understanding of the differences between hidden energy broker fees and commissions, see Energy Broker Myth # 2: “My fee is paid by the supplier”).
 
There are three aspects to this claim that are diabolical. First, energy brokers are not compensated by energy suppliers via commissions. They are compensated via hidden upcharges embedded in consumers’ energy supply prices. Consequently, energy consumers unknowingly realize significantly inflated energy prices, the result of hidden energy broker upcharges.
 
Secondly, the “channel partner” phrasing creates a misconception that energy suppliers actively engage energy brokers to “extend” their sales forces. While this is possible, it is not the norm. Most energy suppliers are adequately staffed with “in the field” sales representatives. Moreover, energy suppliers desire to establish direct relationships with energy consumers. Why? Because a direct relationship increases energy supply contract renewal potential. In fact, many energy suppliers are uncomfortable working with energy brokers. First, energy suppliers worry that energy consumers could hold them indirectly responsible for allowing energy brokers to embed enormously high fees (without energy consumers’ knowledge) into their energy supply prices, if energy consumers discover the existence of hidden energy broker fees. Also, energy suppliers are concerned about transactional liability, as many energy brokers do not know enough about the energy supply industry as a whole, or how to accurately represent the pros and cons / features and benefits / risks and rewards specific to energy supplier contracts.
 
Thirdly, “partnerships” between energy suppliers and energy brokers can lead to dramatically inflated energy supply prices for energy consumers. How? Energy brokers are desperate to do two things: hide their upcharges and maximize their upcharges. A tactic energy brokers use to do this is by cutting “a side deal” with energy suppliers that is best described by the following exchange by an energy broker and an energy supplier:
 
Energy Broker to Energy Supplier: “If you let me hide my upcharge in your energy supply price, I won’t really shop your energy supply offer, and I will allow you to do want you want with your energy supply price (i.e., extract higher profit premiums from the energy consumer). Since the energy consumer doesn’t understand energy pricing anyway, they will never know.”
 
Energy Supplier to Energy Broker: “OK, sounds great!”
 
This is a disaster for energy consumers. Energy consumers engages energy brokers under a false claim that there is no cost and trust that energy brokers will aggressively scour the marketplace to find optimum energy supply deals. One reason that energy consumers engage energy brokers is because they feel vulnerable about cost leakage and risk when attempting to arrange energy supply contracts on their own, and for a lot of valid reasons. But, this type of “partnership” takes full advantage of this vulnerability. Since the energy supply price is “unchecked” by the energy broker, and since the energy broker upcharge is set by the energy broker, “unchecked” by the energy supplier, and unknown to the energy consumer, the energy consumer doesn’t receive the best offer from the energy supplier (because there was no real competition), and the energy broker upcharge, which is set by the energy broker, is outrageously high. The result for the energy consumer – a significantly inflated energy supply price. The energy broker wins, the energy supplier wins, and the energy consumer loses. This is the exact opposite of what the energy consumers expects when engaging an energy broker.
 
As a side, energy suppliers that try to justify the advantages of the “partnership” described above may be in fact benefiting from this arrangement, as described above. As referenced above, not all energy suppliers are willing to participate in such “partnerships” due to the potential consequences tied hidden energy broker upcharge discovery by energy consumers.
 
By the way, this type of “partnership” is one of five tactics that energy brokers use to increase their upcharges at the energy consumers’ expense. I will be introducing the other 4 tactics in upcoming posts.
 
If you don’t believe me, ask any energy supplier.

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