Valuable Services

A few simple reasons to use a broker for retail energy procurement

By: Tim Clark

Whether it’s the energy industry, the insurance industry or the banking industry, brokers provide a valuable service to the marketplace. In the case of the energy industry, energy suppliers consider brokers a valuable channel to the retail energy markets that allows suppliers to have smaller in-house sales and marketing groups.

This saves them the overhead costs associated with maintaining these employees, as well as the marketing cost associated with acquiring customers. Brokers account for almost half of the volume of some energy suppliers.

Reason #1
When energy suppliers are forced to compete for your business, you save money. It is human nature that whenever people are selling a product (whether it’s a car, a necklace or an MW of electricity), their offer price is affected by the prospect of competition. If they feel they have no competition, the price offered will be higher.

Brokers force competition. Many suppliers will offer a different/lower price to brokers compared to giving a customer a price directly, simply because they know they have to compete for the business. This drives the suppliers’ margin, as well as your final price, downward.

Reason #2
Another reason suppliers are more likely to give a broker a better price than individual companies going directly to the supplier for pricing is due in large part to the fact that larger brokers such as Stellar Energy Solutions are placing many customers with suppliers over the course of the month. Suppliers are much more likely to give a competitive price to a broker not only because they know they are competing for the business, but also because they know competitive pricing through a broker will get them the opportunity for more business from the broker.

When a customer goes directly to a supplier, this “volume discount” is not necessarily realized by the customer. The supplier doesn’t necessarily feel the need to price as aggressively because the customer’s one contract may come up for renewal only once every year or two. Compare this to brokers giving them the opportunity to bid on dozens of customers per month – who do you think is more likely to get a better price?

Reason #3
Some brokers, such as Stellar Energy Solutions, offer consulting services that go far beyond the scope of what a supplier can offer. Most suppliers are only interested in giving a price to supply electricity, which is their core business. They simply don’t have the staff to provide “value added” services.

If your company’s situation is non-standard in any way, brokers such as Stellar Energy Solutions can offer you services that most suppliers won’t. This includes such things as utility bill auditing, rate schedule analysis, sales tax audits and quantitative analysis services, just to name a few.

Reason #4
Faced with the prospect of shopping for electricity on their own, most companies would be hard-pressed to name more than one or two electricity suppliers to solicit pricing from. Larger brokers like Stellar Energy Solutions work with a dozen or more suppliers, which increases the probability of lower, more competitive pricing for you.

Reason #5
It is difficult for customers to properly and effectively compare the results of bids received from multiple suppliers. A supplier’s bid is based in large part on market prices for electricity, which change by the minute. A price received from a supplier on one day is not directly comparable to a price received from a second supplier on another day. This makes comparing results very difficult.

Furthermore, the contract terms and conditions for each supplier are different. As an educated buyer for your company, you need to understand the subtle differences between the contracts. Some differences can materially affect what you pay. More experienced brokers like Stellar Energy Solutions have extensive experience with contract language, maintaining and reviewing all supplier contracts on a regular basis.

Reason #6
Do you know for sure that all pricing components are included in the price you receive from a supplier? For example, some suppliers will quote prices that do not include certain taxes. This will make their price appear lower than it really is. Stellar Energy Solutions reviews supplier pricing for all pricing components and makes sure all items are included so that the price you see is truly an all-in price.

Who pays brokers for their service?
Brokers are paid a fee by the supplier for the business they bring the supplier. This is similar to the fees paid to car dealers by banks for having customers finance their cars with a particular bank. It is also very similar to the way you purchase insurance. In the case of the energy supplier, this fee is reflective of the fact that the supplier is avoiding employee overheads and marketing expenses associated with acquiring customers through their own in-house sales force. The broker is compensated for the marketing and employee expenses associated with customer acquisition for the supplier.

For more information, contact Tim Clark at tim.clark@stellarnrgsolutions.com or call 361-884-8973.

 

Photo provided by Stellar Energy Solutions

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