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Improving Electricity Shopping for Businesses

Finding a low electricity rate for your business can be a challenge. For most small businesses, working with an electricity broker is the most common approach.  While many brokers do an excellent job at providing value, not all business owners benefit from using a broker.  Frontier Utilities, an electricity provider, recently announced that is giving commercial customers the ability to shop for electricity online without going through a broker.  This development prompts us to take a fresh look at the electricity shopping experience for business customers.

Broker Electricity Sales

The broker sales channel developed early in the deregulated electricity market. Electricity providers learned that it was difficult to reach commercial customers through traditional sales and marketing efforts.  Larger commercial and industrial customers were accustomed to using consultants or in-house experts for major purchasing decisions.  Those customers fit the direct sales model because their sales cycle is longer and more complex.

Small and medium businesses, on the other hand, often made buying decisions through networks. These networks include chambers of commerce, recommendations from other business owners, or existing relationships from purchasing other business needs.  A business insurance agent, for example, could easily mine his customer list for electricity brokering opportunities

The broker sales channel allows electricity providers to efficiently tap into a large number of sale opportunities. Developing a direct relationship with these customers is difficult, time-consuming, and expensive.  However, as the market matures, electricity brokers have to offer more value than simply being an efficient means of reaching customers.

Electricity Broker Value

Electricity brokers vary greatly in the value they provide to the market. Some are more transactional in nature and provide customers a simple means of contracting for electricity supply.  Other brokers are consultative in their approach and spend more time identifying customer needs and leveraging with suppliers.

A good broker knows which electricity providers are competitive on price and which offer the most flexible contract terms.  Electricity brokers who spend time reviewing the needs of the customer and working with providers to address those needs are truly providing a valuable service.  Many brokers exhibit this diligent and fiduciary approach.

However, as in any industry, there are brokers who give this sales channel a bad name. Brokers in this category serve only as intermediaries between customers and electricity providers. They have access to customers and pricing plans and little more.  For the most part, these types of brokers add negligible value and serve only to drive up prices for short-term financial gain.  Consequently, this results in an inefficient market in that illogical transaction fees mute the benefits of competition.

Need for More Shopping Options

Not every commercial customer needs a customized electricity supply agreement. Some customers have very stable electricity consumption and have no plans to add or close facilities. They may not value high-touch customer service or need guidance on term length.  As a result, these customers simply want a low electricity rate with autopay.

For those customers, brokers add little value to their electricity shopping experience. They need drive-thru service instead of a sit-down dining experience.  These customers would benefit from a robust and competitive online shopping market.  Whether this consisted of shopping with individual electricity providers or using a commercial online shopping platform, there is a need and a place for this in the market.

Continued development of online electricity shopping opportunities for commercial customers will produce efficiencies in the direct and broker sales channels.  There will always be a need for these channels.  However, the reach of those channels should be driven solely by the value they add to the customer and to the market.  Brokers who add real value to the energy buying process have nothing to fear from online sales.  Brokers who act only as a middleman and add little tangible value may not have a place in a mature multichannel electricity market.

About: Charlie Hewitt

Charlie Hewitt has more than 25 years of in-depth energy experience having served in executive and managerial roles at some of the largest retail energy providers in North America.His expertise covers a wide range of retail energy disciplines including pricing, contracting, risk management, and credit. He holds an MBA from UT Arlington, MA and BS degrees in geology from UT Austin, and was a TXU environmental research fellow.

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