Energy Brokers Increasing Revenues at the Expense of Their Own Clients
This is the second segment of the expose regarding a tactic that energy brokers use to maximize, not just establish, but maximize hidden upcharges embedded into energy supply prices which can amount up to 25% of the total energy supply cost.
I call this the “Stuff & Fluff” tactic.
The first segment explained the premise behind the “Stuff and Fluff” tactic. This second segment will provide an example of how this diabolical tactic is orchestrated.
As stated in Segment 1, energy brokers need multiple quotes from energy suppliers to pull off this maximization. Energy brokers that use the “Stuff and Fluff” tactic take advantage of the differences in energy supply prices to maximize their hidden upcharges. Energy supply prices vary from supplier to supplier. Some are higher, some are lower. Energy brokers that employ the “Stuff & Fluff” tactic use this market intel for their benefit, at the expense of their “client” that they are supposed to be “helping.”
Energy Broker Manipulates Prices to Make More Money – An Example
Using electricity as the fuel type, the following is an example that will use prices from two suppliers, for simplicity. The prices below have not yet been manipulated by the energy broker with embedded and hidden upcharges, are the true market, and are as follows:
Supplier 1: $50/Megawatt-hour (MWh) [$50/MWh = $0.050/kilowatt-hour (kWh)]
Supplier 2: $55/MWh
Based on the true market, there is a $5/MWh difference in the energy suppliers’ prices.
However, the energy consumer will never know about, see, or benefit from price offers that reflect a $5/MWh differential, a result of the “Stuff & Fluff” tactic.
In this example, let’s assume the energy broker typically embeds a secret hidden upcharge of $6/MWh (to learn about the basics about hidden energy broker upcharges, click here). With a $6/MWh upcharge, the energy broker would present the following offers to the energy consumer:
Offer 1: $56/MWh ($50/MWh + $6/MWh)
Offer 2: $61/MWh ($55/MWh + $6/MWh)
But, this is not what the energy consumer will see. Orchestrating the “Stuff & Fluff” tactic, the energy broker manipulates the prices to take most of the $5/MWh price differential for their own benefit.
Taking advantage of the energy consumer’s lack of expertise regarding electricity price offers (this is why the energy consumer decided to work with the energy broker in the first place), the energy broker “stuffs” the lowest offer (from Supplier 1) with a $10/MWh upcharge, instead of the standard $6/MWh upcharge, and presents the following offers to the energy consumer:
Offer 1: $60/MWh ($50/MWh + $10/MWh)
Offer 2: $61/MWh ($55/MWh + $6/MWh)
The market presented a $5/MWh difference. The differential presented to the energy consumer is now only $1/MWh. The energy broker intentionally set the upcharge at $10/MWh to cause the corresponding offer to be slightly below Offer 2. The energy broker knows, all things being equal, the energy consumer will select Offer 1 because it is lower than Offer 2. The energy broker has manipulated the prices to steer the energy consumer to Offer 1 – the one that includes the highest hidden embedded upcharge. Once the energy consumer selects Offer 1 at $60/MWh, boom, the upcharge has been maximized.
The original price from Supplier 1 has been stuffed with a $10/MWh hidden upcharge, and the price that the energy consumer elected has been fluffed from $50/MWh to $60/MWh.
The energy broker has claimed $4/MWh of value that the market would have presented to the energy consumer, had the energy consumer known. Ultimately, the upcharge has been maximized at the expense of the energy consumer.
Energy consumers have no idea that this maximization is happening, let alone that there are hidden upcharges in the first place, because they have been told by the energy broker that the energy procurement service provided by the energy broker is of “no cost” to the energy consumer. Unfortunately, the use of this tactic is commonplace.
If you don’t believe me, ask any energy supplier.