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Commercial Electricity Brokers: 5 Questions

As electric customer choice markets continue to evolve, brokers are playing an ever-increasing role in commercial energy procurement. This is especially true for small and medium-sized commercial customers where electricity providers have found brokers to be an efficient and effective customer acquisition channel.

In markets like Texas, a small business owner is far more likely to be solicited by electricity brokers than by energy providers. Some states regulate electricity brokers and require them to go through a licensing process. Other states largely ignore brokers and focus their consumer protection efforts on electricity providers.

Electricity brokers range from one-person shops to large, international organizations. Ethics and styles among electricity brokers, as with any sales group, can vary significantly. Some brokers are transactional while others prefer establishing a relationship with the customer. Reputable brokers represent the customer and seek the best offer from a top-rated supplier. Other brokers are motivated by preferred commission schemes and exercise limited diligence in the energy procurement process.

When selecting an electricity broker for your business, it is important to be choosy and make sure that the broker represents your interests. The questions below may be helpful in selecting a commercial electricity broker.

How many electricity provider marketing agreements does the broker have?

This is important because a good broker will have agreements with several top-rated energy providers. Some brokers operate as pseudo-exclusive representatives for one or two electricity providers. You want your broker to shop your business to four to six electricity providers depending on the size of your business. You will not get much value if the broker only checks electricity rates with one or two providers.

Will the pricing be based on your individual usage history or on standard rates?

Ideally, pricing will take into consideration the actual usage history of your business. However, not all businesses are large enough to qualify for this customized approach. Standard rates, also known as matrix pricing, facilitate transacting with small businesses. The broker may not have much control over the pricing methodology but they should be willing to explain how the pricing will be obtained from each electricity provider.

How is the broker compensated for their services?

This is a bit of a trick question. Some brokers claim that their services are free. Of course, nobody can earn a living providing free services. The reality is that the broker is typically compensated per kWh of sales. Their fee is added to the electricity rate. This is a fair and customary practice as long as the broker is providing a valuable service and the fee is reasonable. The point in asking this question is find out if the broker will be honest about the commission structure. Avoid brokers that are not forthcoming on this topic.

Will the broker show you the rates for each electricity provider?

A reputable broker realizes that their role is to present offers and make recommendations. Ultimately, the decision as to which offer to select belongs to you. After all, the contract for electric service is between you and the provider. Therefore, you should be able to see rates from multiple providers presented for side-by-side comparison. Ask the broker questions about the providers (e.g., financial stability, complaint history, online account management, rewards programs, etc.). Be especially curious if the broker recommends a higher price offer. There may be a valid for doing so but asking questions will help you judge if the broker is representing your interests.

Did the broker ask about my business and my risk tolerance?

A thorough electricity broker will find out about any anticipated changes to your business. Are you adding a location, closing a location, relocating, increasing floor space, or modifying operations? Are you risk averse? Do you prefer fixed rate electricity plans? Do you like long-term deals or prefer to remain flexible with shorter terms? A broker should ask these questions to make sure they find you the right electricity rate plan. Be concerned if a broker simply pushes you to contract for the longest possible term. The longest term and lowest rate might not be the best fit for your business if there are operational changes in the near term.

It is important to always remain in control of the energy procurement process. Leverage the broker’s experience and knowledge to your advantage. Ask hard questions and demand honest answers. After the contracting process has concluded, provide feedback about your experience with the electricity provider. Electricity brokers provide a valuable and necessary role in electricity choice markets. Make sure you work with one that represents your interests.

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