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Pennsylvania Electricity Broker: 5 Reasons Not to Use One

Pennsylvania Electricity Broker:  5 Reasons Not to Use One
Searching for a Pennsylvania electricity broker is the first mistep when looking for help getting the best electricity supply deal.

Pennsylvania Electricity Broker: Five Reasons You Shouldn’t Use One

You probably clicked on this page because you were searching for an electricity broker in Pennsylvania. This likely means that you own a business in Pennsylvania and are looking for help getting and comparing electricity quotes.

Recognizing the need for help is awesome. However, your quest for the best electricity deal is in jeopardy because deals garnered through electricity brokers aren’t the best ones you can get.

There are five reasons why you should not use electricity brokers to get price quotes for electric deals in Pennsylvania.

Your Electricity Prices Will Be Significantly Higher Than They Should Be

Prices garnered through Pennsylvania electricity brokers are up to 25% higher than they would be if best energy procurement practices were used instead.

Electricity brokering services are not free. Despite inferences to the contrary, electricity suppliers do not pay commissions (that come out of their pockets) to electricity brokers. Broker compensation stems from invisible markups built into the electricity prices they provide to businesses that engage them for help.

Customers entirely fund electricity broker compensation. Electricity broker compensation comes out of customers’ pockets in the form of inflated electricity prices – not from the pockets of suppliers. This blog post includes more information about how consumers pay for electricity brokering services. The markups can be as high as 25% or more.

Electricity brokers are not independent consultants. They are middlemen to electricity supply transactions. Electricity brokers solicit electricity prices from suppliers, mark them up, and then they present the marked-up prices to their customers. When businesses sign electricity contracts garnered through brokers, the markups, and brokers’ compensation, are secured. This post is a good read about tactics some brokers use to maneuver businesses into working with them.

The distinction between commissioned sales and middleman markups is important. Because brokers are trying to optimize compensation by maximizing hidden markups, their customers risk paying significantly more for electricity. The greater the markups, the higher are the prices that businesses pay for electricity. The objectives of electricity brokers and consumers do not align.

You May Not Have Access to the Best Electricity Supply Deals

Many electric suppliers have significantly reduced the number of brokers with whom they will do business. As a result, not all electricity brokers have access to suppliers with the best offers. When electricity brokers do not have access to the best supplier offerings, their customers don’t either. As a result, businesses end up paying more for electricity when their brokers don’t disclose that more cost-effective offers from other suppliers aren’t available.

How would a business know that their broker didn’t have access to more cost-effective electricity deals? They wouldn’t unless disclosed by the broker. But electricity brokers won’t make these disclosures because that could jeopardize transactions with potential customers.

Your Business is at Risk for Compromised Electricity Buying Advice

Electricity brokers push to make deals happen because their compensation stems from hidden markups built into electricity prices. Without transactions, they cannot generate compensation. As referenced above, they are middlemen to electricity supply transactions.

Consequently, the electricity buying advice they provide to businesses may be compromised. Financially, what would be in an electricity broker’s best interest – a short-term electric deal or a long-term one? The answer is a long-term one because the electricity broker secures a guaranteed revenue stream for a longer-term. As a result, brokers may push longer-term deals instead of shorter-term ones that might be in the best interest of consumers.

In other cases, businesses are doing electricity transactions at prices that are well-above the utilities’ default rate. Electricity brokers, in a push for transactions to fund their compensation, neglect to inform consumers that they should buy electricity from their host utility company when the utility’s rate is lower. Some states are considering ending electric choice because consumers are paying more for electricity from an electric supplier than what they would have if they bought from the utility company.

Furthermore, some brokers push consumer-unfriendly products that maximize their chances of finalizing transactions.

For example, some brokers hard sell variably priced electricity deals, as a differentiation tactic, when they learn that consumers are considering fixed price deals garnered through other brokers. What if fixed price deals are the right fit? Consumers are victims of compromised advice when transaction-focused brokers steer them toward products that aren’t in their best interests.

You Won’t Be Able to Evaluate the Value that a Pennsylvania Electricity Broker Provides

As referenced above, electricity brokers generate their compensation through hidden markups embedded into electricity prices but avoid markup disclosure. Consequently, businesses that engage electricity brokers don’t know what they are paying brokers. In other words, businesses can’t make a true assessment of the value that electricity brokers provide because they don’t know the cost/benefit relationship.

For example, the customer’s current supplier does not have the best electricity supply deal. The lowest-cost electricity supplier has a deal that will save the consumer $10,000 per year. But the electricity broker has $25,000 per year of hidden markups built into low-cost supplier’s electricity price. The net value to the consumer is more-than-lost, by $15,000 per year – a bad deal for the consumer.

Had the consumer known, they wouldn’t have moved forward with the electricity broker. Moreover, the business can’t make this assessment because the $25,000 broker fee is undisclosed. Worse, the consumer thought that the service was “free” because the electricity broker implied that they get paid a commission that comes out of the supplier’s pocket.

You May Not Get All the Necessary Information to Make Informed Buying Decisions

Price is an important part of the value of electricity supply deals. However, there are many differences between suppliers that impact the total value of their offers and what businesses ultimately pay for electricity. In other words, with prices being equal, some suppliers fit better than others.

A discussion of the differences between suppliers add to deal complexity, but more importantly, transaction reluctance on the consumer side. Some of these details include “Change in Law” provisions typical to electricity supply contracts, bandwidth, and “pass-thru” charges. These issues are associated with post-transaction-related increases to electric suppliers’ billed prices and higher-than-previously-expected costs for energy consumers.

Especially for businesses new to buying deregulated electricity, these details can be deal killers. With these variables in play, there is less certainty that the price of electricity from a third-party supplier will be lower than the utility rate. Without a savings assurance, some businesses will continue to source electricity from the utility and forego an electric supply deal garnered through a broker. Consequently, brokers will avoid discussing these details to increase their chances of securing a transaction while leaving consumers uninformed about post-transaction-related cost risk.

On the flip-side, businesses that understand these details get better electricity supply deals and have additional potential for future electricity cost savings. With prices being equal, some suppliers are better fits than others, especially when electric contracts exceed twelve months. Either due to a desire for transaction expediency or lack of knowledge, many brokers will forego discussing the details connected to more complex electricity supply arrangements. Consumers that fill the information gaps get better deals and maximize the potential for future savings.

What’s A Business In Need of Electricity Procurement Help to Do?

Try to find a consultant that is willing to work with you on a transparent fee basis. However, be careful. Many brokers position themselves as consultants when they are brokers in reality. In general, consultants work with consumers on a transparent fee basis, meaning that the consumer receives an invoice directly from the consultant for services rendered. Consultants should be able to justify their fees relative to the value they can provide. As such, consumers can more accurately make a cost/value assessment.

Another word of caution. Some consultants that offer services on a transparent fee basis simultaneously use the electricity broker compensation model – embedding hidden markups into the electricity prices they provide to consumers. This post about “Double Dipping” includes information about this practice.

Pennsylvania Electricity Broker: Wrapping It Up

There are five reasons not to use a Pennsylvania electricity broker to help with electricity procurement, and they are as follows:

  1. Your electricity prices will be significantly higher than they should be.
  2. Your business will be at risk for compromised buying advice.
  3. You may not have access to the best electricity supply deals.
  4. You won’t be able to evaluate the value that the electricity broker provides.
  5. Your business may not get enough information to maximize savings and minimize risk.

Suggestions to help you reach your goals include:

  • Try a different search phrase than “Pennsylvania electricity broker”.
  • Find a consultant that will work with your business on a transparent fee basis.
  • Seek fee transparency by requesting a proposal for services rendered.
  • When seeking fee transparency, require that the fee is expressed in terms of total annual or total per term, not per unit of energy.
  • Request documentation from natural gas or electricity suppliers that they will not be compensating your consultant in any way regarding your supply agreements.
  • Garner an understanding of the value of the services vs. the cost of the consulting fees.
  • Ask the consultant to name the suppliers from which they won’t be soliciting offers, and ask why.
  • Make sure that the electricity consultant is not “double-dipping.”
  • Remember, always create competition between multiple electric suppliers, because offerings vary significantly regarding price and value.

As a side note, this as an article about a consumer-focused warning issued by the Penn State Facilities Engineering Institute about brokers adding fees to energy rates behind the scenes. The article references a sample email solicitation to a business from a Pennsylvania electricity broker.

If you would like to learn about Foster LLC’s perspective on electricity procurement, read this. With questions or comments, please call (412) 308-6482 or reach out via the Contact page.

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