How a commercial energy broker works (and what it costs)

What a commercial energy broker actually does

In a deregulated market, your local utility still owns the wires and delivers the power. The energy itself comes from a retail supplier, and you can pick which one. Most businesses never shop that choice. They renew with whoever they already have, or they let a contract expire and roll onto the supplier's month-to-month "holdover" rate, which is usually the most expensive option available.

A broker's job is to turn that passive renewal into a competitive process. In practice that means:

• Profiling your load. The broker pulls 12 to 24 months of interval usage from your utility and builds a picture of your peak demand, load factor and seasonality. Suppliers price risk, and a clear profile lowers the risk premium they bake into your rate.
• Running the market. Your load goes out to a bench of licensed suppliers at the same time, in a structured request for pricing. Suppliers know they are competing, which is what moves the price.
• Normalizing the offers. Supplier quotes rarely line up. One includes capacity charges, another passes them through, a third has a bandwidth clause that penalizes usage swings. A good broker rebuilds every offer on the same basis so you compare total cost, not headline rate.
• Negotiating terms. Contract length, swing tolerance, early termination language, pass-through clauses and the start date all affect what you pay. These are negotiable, and most businesses do not know to ask.
• Managing the renewal. The contract gets logged, and the process restarts six to twelve months before expiry so you are never forced to buy in a bad market week.

How energy brokers get paid

Most commercial brokers are paid by the supplier, not the client. The broker's fee is a small adder, typically quoted in mils (thousandths of a dollar) per kilowatt-hour, that the supplier builds into the contract rate. You pay the supplier's rate as usual, and the supplier remits the broker's share.

That model has a real benefit: there is no invoice from the broker, no retainer and no cost if you decide not to sign. It also has a catch you should understand. Because the fee is inside the rate, a broker who does not disclose it could inflate it. Two questions settle this quickly:

1. "What is your fee on this contract, in mils per kWh?"
2. "Is that fee the same across every supplier you quoted?"

A transparent broker answers both without hesitation. If the fee varies by supplier, the recommendation may be following the fee rather than your interest.

Broker, consultant or go direct?

There are three ways to buy commercial electricity, and each suits a different kind of business.

Going direct to a supplier

Simple, but you only see one price, and that supplier's sales rep is not paid to tell you a competitor is cheaper. This works for very small accounts where the dollars at stake do not justify a process.

Using a broker

The broker runs competition across many suppliers and is paid through the rate. This is the right fit for most commercial accounts, from a single restaurant to a multi-site portfolio, because the cost of competition is already priced in and the savings from it usually exceed the fee several times over.

Hiring a fee-based consultant

Large industrial users with complex loads sometimes pay a flat consulting fee instead. The advice is independent of supplier commissions, but you pay whether or not you sign, and the economics only work above a certain spend.

How much can a business save?

It depends on three things: how competitive your market is, how your load looks to a supplier, and when you buy. Businesses that have been renewing passively often see an 8 to 15 percent reduction the first time their load goes to competitive bid, and more if they were sitting on a holdover rate. The timing effect is just as large. Wholesale power prices move daily, and a contract signed in a calm month can beat the same contract signed during a price spike by a wide margin, which is why renewal timing is a core part of the service rather than an afterthought.

Questions to ask before you sign with any broker

• How many suppliers will quote my load, and which ones?
• What is your fee, and is it the same for every supplier?
• Will I see the raw supplier offers, or only your summary?
• Who handles the contract if a supplier bills me incorrectly?
• When will you start my next renewal, and will you tell me what the market is doing in the meantime?

If a broker is vague on any of these, keep shopping. The entire value of a broker is transparency and competition, and a broker who will not be transparent about their own role is unlikely to deliver either.