FRESH THINKING ENERGY
7 Deadly Sins How Brokers Earn Their Money
Energy Brokers Responsible for procuring energy on the behalf of end users; Supplier Energy Broker End User Brokers should; Manage Risk Save time & money Provide specialist market information Work with end users to find effective solutions for their energy requirements
So, How Do Energy Brokers Earn Their Money?
1. Undeclared Commission Brokers don t work for FREE, despite what they may tell you Brokers take fees by; p/kwh commissions Direct management fees Brokers often fail to declare their fee, instead choosing to take an undisclosed commission on top of the supply contract LGE has discovered contracts where end users have unknowingly been paying up to 18% of contract value in commissions!
2. Dual Commissions Some brokers have been found to take a client fee AND an undisclosed commission Only the End User loses out in this scenario! Supplier Commissio n Fee End User LGE has seen numerous instances where consultants have REFUSED to disclose the commission they ve been taking.
3. Quota Based Supplier Incentives Some brokers receive remuneration for referring a certain number of clients to suppliers Often, these end users don t even go to a full tender so they don t receive a true market price Incentives aren t usually brought to the end users attention Remove control from the end user and can tie them in to long term contracts The resource used to pay incentives is likely to cause additional cost
4. Lack of Service Delivery The most frequent complaint by end users, is that what was promised on day one hasn t been delivered Clear service level agreements need to be set up in the initial stages and adhered to Brokers responsibility to educate the end user regarding the service End user requirements are varying and complex
5. Lack of Trading Expertise The main benefit of a broker is to offer expert advice on the energy markets to manage risk Energy markets are incredibly complex and require deep understanding to navigate Too many consultancies have trading teams with inadequate skill sets to fully optimise energy portfolios Misrepresenting trading performance
How performance can be misrepresented
6.Recommending Unsuitable Strategies Too often end users are recommended products which lack the functionality to fully optimise their energy portfolio. Varying requirements and objectives, for example attitude to risk, mean the majority of end users will require bespoke solutions. Your broker should work for their money - not take the easy option!
7. Anti-Competitive Practices Suppliers and TPI s need to work in tandem to deliver a competitive market that works in the best interests of the end user.
The Value of a Good Broker Transparency Energy Education Risk Management Contract Optimisation Regulatory Updates Market Access Reporting
An End User Perspective - Joy Vickers, Brunel Healthcare Joy is tasked with managing the procurement of electricity and gas for all Brunel sites. Her experience within the industry ranges from the typical annual one off renewals to a fully managed flexible energy procurement strategy, using third party intermediaries gained through several years of intense evaluation.
How to protect your business Ensure your broker discloses all costs in their tender Make sure you have a selection of suppliers to choose from - a true test of the offers available in the market Choose a broker with experienced, skilled energy traders Broker services should be ongoing - not only at renewal Ensure your agreement explicitly states how, and what, the broker is being paid and what will be delivered Your broker shouldn t be afraid to educate you where required
Questions?