The “Free” Services of Natural Gas or Electricity Supply Brokers Aren’t Free
If you are a commercial or industrial energy consumer in states where energy choosing third-party natural gas or electricity suppliers is an option, you either have been or will be contacted by natural gas or electricity supply brokers that offer to get and help you compare energy supply quotes for “free” and without obligation.
Sounds good right? You get free energy price quotes, free market intel, free consultation, and without an obligation to sign a contract either with a supplier or broker. What can go wrong?
The problem is, consumers don’t realize that there are two catches, two “gotcha” moments (if you will). That’s because brokers use word-games, talk in half-truths, and omit information to trick energy consumers into thinking that they are getting “free” energy buying help.
Falsehood 1 – “Free” Energy Procurement Services That “Cost You Nothing”
Brokers tell energy consumers that they can get them the best energy deals out there, and they will do all of the work connected to that – for free. But, only up to a point, up to the “gotcha” moment, is the service is “free” to the energy consumer.
What Is “Free”
Here’s what’s “free” about energy brokering services:
- Getting the quotes for you.
- Showing you the quotes.
- Getting you a contract to sign.
The “Gotcha” Moment When It Becomes Not “Free”
THE MOMENT THE ENERGY CONSUMER EXECUTES A NATURAL GAS or ELECTRICITY SUPPLY AGREEMENT, the energy broker service transitions from “free” with no obligation to not free. In fact, it goes from “free” to brutally costly.
What a consumer doesn’t realize is that, when they sign an energy supply contract, they are authorizing the supplier to invoice them for the broker’s charges on behalf of the broker.
You might be asking, “What broker charges?” Good question.
What Are Energy Broker Charges?
Energy broker charges stem from an undisclosed adder to the energy supplier’s actual (& lower) price. They are also:
- Set by the broker at the broker’s discretion.
- Unchecked and unregulated.
- Included in the energy supplier’s invoiced price.
- Funded entirely by the consumer and come out of consumer’s pocket.
- Set as a unit of energy consumption ($/MMBtu, $/kWh).
- Redistributed by the energy supplier to the energy broker after the energy consumer pays the energy supplier’s invoice.
- Continue for the duration of the contract term.
- Cause the natural gas or electricity prices to be 25% than they should be.
- More-than-negate any value that the energy broker could have provided otherwise.
Check out this post to learn how energy brokers markup energy supply prices.
Falsehood # 2 – Energy Suppliers Pay “Commissions” To Energy Brokers
Some energy consumers will question brokers about compensation, to understand how brokers provide “free” services at “no cost.”
In response, energy brokers will further the “no cost to you” narrative by implying that the energy suppliers that they work with give them “commissions.” They will use the phrase, “My fee is paid by the supplier” in response to the questions, “How do you make money?” or “How do you get paid?”
The Marketing Tactic
The phrase “My fee is paid by the supplier” implies “commission,” and this phrasing is intentional. When energy consumers think “commission,” they think that energy suppliers financially reward energy brokers for facilitating transactions with consumers. They think that brokering services are free because energy suppliers are footing the bill, not them. Moreover, because they don’t get bills from energy brokers for their services, and because energy brokers do not disclose price markups, energy consumers have no evidence to conclude that brokers receive anything but commissions from energy suppliers.
Energy brokers intentionally use the phrase, “My fee is paid by the supplier” to create the allusion of “commission” because “commission” implies a payment from the supplier. The thing is, there is a payment from the supplier. To energy consumers, commissions are payments from suppliers that come out of suppliers’ pockets. But for energy brokers, it means payments from suppliers that come out of the buyers’ pockets. Consumers fund the payments, with the funds stemming from hidden energy broker markups to energy suppliers’ actual (and lower) prices.
More on the Marketing Tactics
You can read this post to learn how energy broker upcharges flow from the consumer, to the energy supplier, and then to the energy broker. The Penn State Facilities Engineering Institute issued a warning about brokers adding fees to energy rates behind the scenes.
The “Gotcha” Moment
When energy consumers accept the false notion that energy suppliers pay brokers “commissions” that come out of the pocket of energy suppliers, duped they become.
The energy broker sales model is the classic middleman model. Buy low, sell high. Get a price from an energy supplier, market it up, and sell the higher price to the energy consumer. Energy consumers don’t get the best deal. They get a worse deal, with natural gas or electricity prices that are higher than what they could have worked out with suppliers with best-practice energy procurement.
Energy broker deals are not free to consumers. Working with an energy broker is “free” until an energy contract is signed. Because the price offers from energy brokers include markups added to an energy supplier’s actual (and lower) prices, the execution of contracts and prices finalize the markups which fund broker compensation. After the supplier receives payment from the energy consumer for the invoiced price that includes the upcharge, the supplier redistributes the funds associated with the upcharge to the energy broker – for the duration of the energy supply contract. Brokers imply that they receive “commissions,” but energy consumers don’t define commissions the same way that energy brokers do. These upcharges can result in the energy bill being 25% higher than it would have been if the consumer had worked with the supplier directly.
If you don’t believe me, ask any natural gas or electricity supplier.