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Ohio Natural Gas Brokers: The Top Six Fallacies

Ohio Natural Gas Brokers: The Top Six Fallacies
There are several fallacies about the benefits of using Ohio natural gas brokers.

Ohio Natural Gas Brokers: The Top Six Fallacies

You have a business in Ohio, and you may know one way to save money on your natural gas bill is by switching your supplier. By now, you’ve probably seen numerous ads, and you may have done diligent research on finding Ohio natural gas brokers to help you procure the best natural gas supply deal to save money.

You have the power to change to a different natural gas supplier that can offer the lowest price. However, many businesses relinquish this power to natural gas brokers, thinking that brokers can get them a better deal for free. But, using a natural gas broker has unintended consequences. We’re here to highlight six fallacies about the so-called benefits of using an Ohio natural gas broker.

Fallacy #1: You Will Get a Better Deal than You Can Get Yourself

You may be under the assumption that natural gas brokers can get you better natural gas supply deals than you can without their help. It’s understandable why you may be under that impression. After all, you may receive hundreds of calls and emails from brokers who tell you you’re paying too much for your natural gas and that they can help you get a better deal.

You’re also led to believe that using natural gas brokers won’t cost you anything. Their services are not free, despite what they might tell you. That’s because the prices natural gas brokers will secure for you include invisible markups as high as 25%. These markups are how natural gas brokers make money. This means that you will spend up to 25% more for third party-provided natural gas than you could have if you had properly purchased natural gas without the help of natural gas brokers.

Why Are So Many Businesses in Ohio Under the Impression That Natural Gas Brokering Services Are Free?

Many natural gas brokers use questionable practices that tend to cause businesses to think that they are receiving “free” natural gas procurement services. One way they do this is by inferring that they earn commissions from natural gas suppliers. They don’t. You and other customers are the sources of compensation for natural gas brokers. Brokers hide markups into the natural gas prices they provide to customers to fund their compensation. Since the prices include the markups, when you pay the natural gas supplier’s bill, you pay for the broker’s markup.

Because the markups are undisclosed, and because Ohio businesses are unwary of their existence, natural gas brokers have an unimpeded pathway to make the markups as high as they want. This is why the markups are so high.

The natural gas prices brokers sell to you tend to be up to 25% higher than the suppliers’ actual prices. If you purchased directly from the supplier without a broker middleman, you would pay up to 25% less.

Want proof? Simply ask any natural gas supplier. Suppliers have a margin built into their natural gas prices. However, they do not forfeit any of this margin to fund Ohio natural gas broker commission payments.

Fallacy #2: Suppliers Pay Ohio Natural Gas Brokers as Commissioned Consultants

Most natural gas brokers will attempt to disguise or misrepresent how they earn their fees. Beware of the brokers who won’t disclose how and how much they get paid.

Remember, natural gas brokers are not supplier-paid commissioned consultants. They are consumer-funded middlemen.

It works in one of two ways. Natural gas brokers obtain natural gas supply prices from suppliers and then inflate those prices. Or, they may also ask suppliers to inflate the prices on their behalf and then give you those marked-up prices. Either way, the prices are higher than the supplier’s actual and lower prices because they include broker-related markups. When you sign a natural gas supply agreement negotiated by a broker, those markups are firm. You pay the broker’s fees when you pay the natural gas supplier’s invoice. Suppliers do not have to give up anything to compensate brokers.

Know the difference between a commission model and a middleman-markup model. The middleman model, which is the broker model, is to always “Buy low, sell high.” In addition to marking up prices, natural gas brokers maximize those markups through the use of “Authorization of Agents” with “Exclusivity.” The higher those markups, the higher the natural gas supply prices. Your goal to find the lowest natural gas price does not sync with the goals of natural gas brokers – which is to sell you the price with the highest markups.

A Note of Caution About Natural Gas Broker to Natural Gas Broker Deal Outsourcing

Natural gas brokers may outsource the work of procuring quotes from natural gas suppliers to other brokers. In this scenario, the natural gas supply transaction involves two middlemen. One middleman is the broker of record. The second one is the behind-the-scenes natural gas procurement contractor.

These two middlemen create two layers of hidden markups which significantly inflates the natural gas supply prices even more. As these layers of broker markups increase, the further away from your goal of having the lowest natural gas price.

Fallacy #3: Natural Gas Brokers Have Better Access to Natural Gas Supply Deals Than You

Another reason you may wind up paying more for natural gas supply is that your Ohio natural gas broker may not connect you to the natural gas suppliers who actually have the best deals.

There’s a reason for this. Many natural gas suppliers do not want to be associated with unethical brokers and have significantly reduced the number of brokers they work with. This means that not all brokers have access to all suppliers. So how can they shop around for the best deal for you?

To test this, ask your broker to disclose the names of suppliers that won’t provide offers. They likely won’t do it because if they did, businesses would call these suppliers themselves and work out their own deal, eliminating the broker middlemen from transactions.

By providing you with less-than-optimal offers plus those ridiculous middleman-broker markups, your final price is exorbitant.

Simply put, businesses don’t know that they have access to more suppliers than most brokers do.

Fallacy #4: Ohio Natural Gas Brokers Provide Uncompromised Natural Gas Buying Advice

The goal of a natural gas broker is to negotiate natural gas supply transactions. Without the deals, they are unable to make money. Keep in mind that these natural gas brokers are not supplier-paid commissioned procurement consultants as they bill themselves to be. Rather, they are simply consumer-paid middlemen that are going to try to maximize their markups at your expense.

Consider the broker compensation model. In your opinion, which would be in their best interest: a short-term natural gas contract or a longer-term one? No doubt that it’s a longer-term deal since it guarantees revenue for the broker through the duration of the agreement.

This presents a conflict of interest: your long-term benefits versus the broker’s. Oftentimes a short-term natural gas supply deal is in your best interest—not a long-term deal. Because prices fluctuate, the price may drop in a year’s time. Signing a one-year deal allows you to get that lower price when your agreement expires. But many brokers will push aggressively to get you to commit to long-term deals. They’ll give you biased, incomplete, or false justifications for longer-term deals to secure their customer-funded revenues for a longer term.

Some brokers will also steer you into consumer-unfriendly products to better their chances of finalizing deals or maximize opportunities to inflate markups—even post-transaction.

For example, although you want a fixed price deal, some Ohio natural gas brokers will sway you into a variable price natural gas transaction because they know they won’t win a transaction against other brokers presenting fixed prices. There’s a lot of risk involved in variable price deals, again, since prices tend to fluctuate. This risk with variably priced deals may not align with your business goals. When natural gas brokers promote transactions not in your best interests, these brokers are offering you compromised advice.

Fallacy #5: Consumers Always Win When They Use Ohio Natural Gas Brokers

Just from a total value perspective, if your business works with a natural gas supply broker, you end up much worse off than before. You may think you’re saving money by working with a broker, but that’s a myth and it will cost you up to 25% more money in the end.

When a business works with a natural gas supply broker to help them find the best deal, they assume they are saving money because of promises of a better deal. They also think these services are free to them since they are let to believe that the supplier pays the broker a commission.

But you’re not saving money because any savings you believe you are gaining is more-than-offset by those hidden markups.

Consider this scenario. You can realize a savings of $0.300/million British thermal units (MMBtu) by switching to a new natural gas supplier. However, unbeknownst to you, the broker included a hidden markup of $0.500/MMBtu. That markup more than offsets any of the savings you should have had by $0.200/MMBtu.

That upcharge exceeded any savings potential. In the end, you lose while the broker wins. This scenario is, unfortunately, more common than you think.

Fallacy #6: Natural Gas Brokers Disclose All Information to Help You Make Informed Decisions

You trust that a natural energy broker will help you make an informed buying decision by offering a complete and unbiased review of all the data and information. Of course you would because that is their job. But brokers have their own interests at heart and may omit crucial amounts of information that would sway your decision.

Remember, since brokers are funded through markups hidden into natural gas supply prices, they only make money deals occur.

And they don’t care if a deal is not in your best interest.

Here’s an example. Your broker is pushing a 24-month fixed price deal, but the price is significantly more than the utility’s “default” rate. Your broker, however, has not told you that the utility’s default rate is already low. They won’t disclose this information to you because they will lose out on the revenue if you decide to buy natural gas directly from the utility. No deal means no money for the broker.

Far too many businesses are buying natural gas, sourced through a broker, that is priced significantly higher than the utility’s default rate, and they have no idea this is happening. Some states are thinking about abandoning energy choice programs because consumers are not saving money.

Finally, brokers tend to fixate on price. There may be situations when a higher-priced deal of one supplier is a better value than a lower-priced offer. You should know why. There may be several variables that affect the total value of both offers. Brokers, to make a fast buck, may rush through a deal so they can get compensated.

If You Need Help with Natural Gas Procurement, What Can You Do?

You still want the best natural gas deal possible, but may be hesitant to work with a broker now. If you want to be sure you have some looking out for your best interests, enlist a natural energy consultant who can help your business under a full fee disclosure.

You still need to be careful, though. Some brokers like to promote themselves as independent advisors or consultants but are still broker-middlemen.

Consultants do make money. But they do not make money through hidden markups or upcharges. Consultants invoice you for the services provided at a fee you agreed to. That’s it.

Also, be especially wary of those “consultants” or “advisors” (natural gas brokers in disguise) who “double-dip.” They embed hidden markups into natural gas supply prices while also billing you a consulting fee.

Ohio Natural Gas Brokers: Conclusion

You learned six popular fallacies of working with natural gas brokers:

  1. Ohio natural gas brokers offer you the lowest natural gas prices.
  2. Natural gas suppliers pay them commissions.
  3. These brokers have better access to natural gas supply deals than you.
  4. You will always receive uncompromised energy purchasing advice.
  5. Brokers always put you with a net-win situation.
  6. You have all the information you need to make an informed buying decision.

Tips to Optimize Natural Gas Price Savings

  • Since value and prices from suppliers vary, it’s important to generate competition among multiple natural gas suppliers, whether you do it on your own or work with a consultant or independently.
  • Only work with a natural gas consultant who will offer a full fee disclosure.
  • Be sure the consulting fee is identified as a flat rate – either as a total annual cost or total term cost (in case the transaction is longer than 12 months) and not as cost per unit of natural gas consumption.
  • Request written disclosures from the consultant and natural gas supplier that no markups are included in the rates to eliminate “double-dipping.”
  • Try to comprehend the relationship between the value of natural gas procurement consulting services and fees.
  • Ask your natural gas supply consultant to identify suppliers they won’t be soliciting offers, and find out why.

For additional information from a reputable third party, the Penn State Facilities Engineering Institute issued a consumer-focused warning about brokers who embed markups to energy rates. They discuss deceptive tactics some brokers use, such as those mentioned above, to promote their “free” energy procurement services.

Get Foster LLC’s take on natural gas procurement. Call today at (412) 308-6482 or connect with us through the Contact page to start a conversation.

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