Energy brokers play a crucial role in helping businesses navigate the complex world of energy procurement. By acting as an intermediary between businesses and energy suppliers, brokers can help businesses secure competitive energy prices and find the best deals on energy contracts. However, energy brokers also earn commission for their services, and this commission can have a significant impact on the overall cost of energy for businesses. To ensure transparency and fairness, it’s important for businesses to carefully review energy broker commission agreements before signing them. As our experience shows, energy broker not always act in good faith and are known to mends the ethical rules to ensure that the agreement is very difficult to understand, as in this way, they are able to hide extortionate amount of commissions that you as a business owner will be paying on top of your energy rates.
In this article, we’ll discuss the steps that businesses can take to review energy broker commission agreements and ensure that you are getting a fair deal.
Understand the Commission Structure
The first step in reviewing an energy broker commission agreement is to understand how the broker will be compensated. There are several different commission structures that brokers may use, including:
Flat Fee: Some brokers charge a flat fee for their services, regardless of the size of the business or the amount of energy used. This fee may be paid upfront or over the course of the contract. The flat fee commission structure is usually agreed upon between the energy broker and the business at the beginning of their engagement. The energy broker may also outline the specific services they will provide to the business, such as negotiating with suppliers, analysing energy usage data, and providing ongoing support and guidance. It’s worth noting that some energy brokers may charge additional fees on top of their flat fee commission, such as a transaction fee for each energy deal they secure or a fee for ongoing energy management services. Therefore, it’s important to carefully review the terms and conditions of the agreement before signing a contract with an energy broker.
Percentage of Energy Cost: Other brokers charge a percentage of the energy cost, which can vary depending on the size of the business and the length of the contract. There are some benefits of the Percentage of Energy Cost commission structure, however, in a lot of cases the disadvantages are being sold as benefits. Please note that some might be actual benefits to the business:
- Cost savings: Clients may benefit from this pricing model because the energy broker is incentivized to negotiate better energy rates, which can result in cost savings for the client. However, some brokers are paid bigger commissions from the suppliers and will use their skills of manipulating numbers to show this as a benefit to the business.
- Transparency: The commission percentage is calculated based on the actual energy cost incurred by the client, so clients have visibility into the cost of the energy broker’s services. This only applies if the energy broker is an independent and ethical one. Most energy brokers will hide their commissions in the fee that you will pay per kWH, and will not disclose that.
- Flexibility: This commission structure can be flexible and can vary depending on the specific needs of the client. For example, if a client has a large energy consumption, the commission percentage can be negotiated to be lower.
By understanding the commission structure, businesses can get a sense of how much they can expect to pay for the broker’s services and how the commission will impact the overall cost of energy.
Review the Commission Rate
Once you understand the commission structure, it’s important to review the commission rate to ensure that it is reasonable and competitive. The commission rate may vary depending on a variety of factors, including the size of the business, the length of the contract, and the broker’s experience and expertise.
To determine whether the commission rate is fair, businesses should research the average commission rates for energy brokers in their area and compare them to the rate offered by the broker.
Look for Hidden Fees
In addition to the commission rate, businesses should also look for any hidden fees or markups that may be included in the commission agreement. Some brokers may include additional fees or markups that are not disclosed upfront, such as “administrative fees” or “transaction fees”. These fees can add up quickly and significantly impact the overall cost of energy for businesses.
To avoid these hidden fees, businesses should carefully review the commission agreement and ask the broker to clarify any language that may be unclear or ambiguous. If the broker is unwilling or unable to provide clear answers, it may be a red flag that they are not operating transparently or ethically.
Check for Conflicts of Interest
Some energy brokers may have relationships with energy suppliers or may be incentivized to steer businesses towards certain suppliers. This can create a potential conflict of interest and may not be in the best interest of the business.
To avoid conflicts of interest, businesses should carefully review the commission agreement and look for any language that may indicate a potential conflict. For example, if the broker receives a higher commission for recommending a specific energy supplier, this may be a sign that the broker is not acting in the best interest of the business.
Understand the Termination Clause
Finally, businesses should review the termination clause in the commission agreement to ensure that they understand their rights and obligations if they decide to terminate the contract early. Some agreements may require businesses to pay a fee if they terminate the agreement early.