Ohio Electricity Brokers: Five Reasons to Avoid
As a business owner in Ohio, you’re always looking to cut expenses. Utility costs are usually at the top of the list of reductions. One way you can save your company money is by getting the best electricity deal possible. So you may decide to look for electricity brokers in Ohio who can help you compare electricity offers and select the best plan.
Good idea, right?
Not necessarily. Electricity deals offered through electricity brokers typically are not the best ones available and maybe the worst.
Below are five ways how electricity deals garnered through electricity brokers end up bad for businesses in Ohio.
You Are Not Getting the Lowest Possible Electricity Prices
The prices you receive from Ohio electricity brokers will not necessarily result in the best deal for your business. Actually—you may end up paying 25% more than you should.
Always keep in mind that electricity brokering services are never free. Despite what you may have been led to believe, electricity suppliers do not pay commissions to electricity brokers. Brokers have to make up for this by padding the electricity prices they offer you with invisible markups. In other words, it’s your business that will be compensating these electricity brokers—not the suppliers. Learn more about these 25% markups from electricity brokering services.
Electricity brokers are middlemen to electricity supply transactions—and not independent consultants. Electricity brokers collect electricity prices from suppliers that will give them offers, inflate them, and then present you with these marked-up prices. When your business signs an electricity contract obtained from one of these brokers, the markup and broker’s compensation are secured. You can read more about the tactics some brokers will use to maneuver businesses into working with them.
Brokers are expected to provide you with value by shopping competitive electricity suppliers on your behalf, generate competitive offers, and present you with the optimal solution. While brokers will try to convince you that this business model is an antidote to the current system for electricity deals, don’t be fooled. Brokers have to make money on the deals. Since suppliers don’t pay them commissions, they will maximize those hidden markups, which means you will end up paying more for your electricity. Higher markups mean higher prices for you.
Ohio Electricity Brokers May Have Limited Access to the Best Electricity Supply Deals
Over the years, many electric suppliers have minimized the number of brokers with which they will work. So while brokers may claim they will shop for the best offer, the truth is that many of them do not have access to suppliers with the best offers for your business. When they have a limited pool to choose from, your options for the best deal becomes that much smaller.
Often, businesses will end up paying more for electricity, not realizing that their brokers were unable to acquire more cost-effective offers. Since brokers will not disclose this information because it could impede a transaction with you, your business could be unaware of the limited access electricity brokers have. While these practices are indeed legal, they are, at best, questionable and a little deceitful.
Slanted Electricity Buying Advice
After luring you into working with them, electricity brokers may attempt to push you into making a deal quickly – since their compensation is dependent on those markups. They are doing a disservice to you, and likewise, you are doing your business a disservice.
As price-padding middlemen between electricity suppliers and consumers, brokers are unable to provide you with the best possible deals. Besides, their lack of transparency and clarity is unfair to you, and any recommendations are compromised.
As you compare the prices brokers obtained for you, you’ll notice that they may steer you into long-term deals instead of short ones. That’s because a long-term deal benefits them and not necessarily your business. Long-term deals ensure brokers guaranteed long-term revenue streams at your expense.
In another example, it may be in your best interest to remain with your host utility company when their rate is lower. However, an electricity broker will not tell you this because they’re looking for deals that will fund their compensation. Some states are now weighing the option of eliminating electric choice since consumers have been paying more for electricity from an electric supplier than what they would have if they remained with their host utility provider.
Some Ohio electricity brokers will even push consumer-unfriendly products so that they can maximize their chances of sealing a deal with you. Those products may include variably priced electricity deals. You may prefer a fixed price deal because it’s easier to budget for each month. If a fixed price deal is ideal, but a broker is pushing you towards a variably priced one, they are only doing themselves a favor. When your broker is trying to convince you to finalize a transaction that is not in your best interest, you come out on the short end.
Unable to Determine the True Value of the Services of Ohio Electricity Brokers
As mentioned previously, electricity brokers make their money by adding hidden markups into electricity prices. As a result, you have no idea how much they are making off of your deal. Unsure of the cost/benefit relationship, you will not be unable to assess the true value of using an electricity broker.
Let’s say your current supplier does not have the best electricity supply rates. Instead, the lowest-cost electricity supplier in your market has an offer that would save you $20,000 per year. Your electricity broker, however, added $45,000 of hidden markups into this supplier’s price. By switching to this supplier, you’re losing $25,000 annually. That’s not a good deal for your business.
What if you had known about the hidden markup? Would you have switched? Of course not. But you were unable to accurately assess this deal because you had no idea there would be a $45,000 annual broker fee. Instead of disclosing this info, electricity brokers will lead you to believe that any commission comes from the supplier.
Lack of Information to Make Informed Purchasing Decisions
As with any major expense, price is a critical component of the value you expect to receive from an electricity supply deal. There are several differences among suppliers in the marketplace that impact the total value of their offers. With prices being equal, some suppliers would be a better fit for your business than others.
Some of the details in the proposed contracts you see often include “Change in Regulation”, bandwidth, and “pass-thru” provisions. These are all are linked to post-transaction-related increases to electricity suppliers’ billed prices and higher-than-previously-expected costs for you.
These details can be deal killers, especially if you’re new to buying deregulated electricity. With these variables in play, there is uncertainty that the electricity price from a third-party supplier will be lower than your current rate.
A lack of guaranteed savings causes some businesses to remain with their current utility provider and pass on any electric supply deals offered by a broker. What tends to happen, as a result, is that brokers will not discuss these post-transaction-related costs to increase the odds of getting you to switch to a new supplier.
However, businesses that are aware and understand these post-transaction-related costs tend to land better electricity supply deals with the potential to maximize future savings. Again, with prices being equal, some suppliers are indeed a better fit than others, especially if an electric contract extends past a year. Fear of losing a deal, many brokers will not discuss the details connected to these complex electricity supply arrangements.
What Should You Do if You Want to Find the Best Electricity Deal for Your Business?
Instead of working with an energy broker who does not have your best interests, find an energy consultant who will work with you on a transparent fee basis.
You still need to be cautious because many electricity brokers pawn themselves off as consultants when they are still just brokers.
How can you tell?
Typically, energy consultants work with businesses on a transparent fee basis. You will receive an invoice from the consultant for meaning for services rendered. If the “consultant” tells you that “the supplier will cover their fees,” that’s an immediate red flag. Since consultants can justify their fees in relation to the value they provide, you can better make a cost/value assessment.
One final word of caution.
Some consultants who provide you with a transparent fee basis will also follow the electricity broker compensation model and add hidden markups into their electricity prices. This post about “double dipping” talks more about this practice.
Ohio Electricity Brokers: Summing it Up
Businesses should be wary of using electricity brokers for help with electricity procurement because there are five ways that deals garnered through them end up highly disadvantageous.
- Your electricity prices end up being much higher than they should, up to 25%.
- You place your business at risk because of prejudiced buying advice.
- You have limited access to the best electricity supply deals.
- You’re unable to determine the true cost/value of your electricity broker’s services.
- Your business may not receive all the information to maximize your savings and minimize risk.
Here are some recommendations to help you attain the best deal possible:
- Try other online search phrases instead of “Ohio electricity broker.”
- Find an energy consultant who offers transparent fees.
- Request a proposal for services rendered.
- When asking for fee transparency, require they express the fee in terms of total annual or total per term—not per unit of energy.
- Ask for documentation from electricity suppliers that they will not be compensating your consultant regarding your supply agreements.
- Garner an understanding of the value of the services vs. the cost of the consulting fees.
- Ask your consultant to list suppliers from which they won’t be soliciting offers, and find out why.
- Be sure the electricity consultant is not “double-dipping.”
- Remember, always create competition between multiple electric suppliers, because offerings vary significantly regarding price and value.
To supplement, the Penn State Facilities Engineering Institute released a consumer-focused warning about brokers building markups into energy rates. The post explores some of the tactics that broker use, like those mentioned in this blog post, to sell “free” energy procurement services.