Small business owners who live in states where electrical utilities are unregulated are often told that they can slash their monthly electricity costs drastically. All they have to do is buy from an independent broker who will shop for the most competitive electricity prices in the market. Best of all, the business owner doesn’t have to pay a cent in sales commissions because the broker’s fees are paid by the electricity provider. That leaves a burning question; can a strategy like this be too good to be true?
For some businesses it’s a huge money saver and for others it really doesn’t deliver significant cuts to their overhead. Then there are companies that manage to rack up drastic savings for a while, but then their costs go back up and may surpass what they were originally paying before they made the change.
You need to have a basic overview of how energy brokers work in order to conduct background research to find out if it might be a positive alternative for you. Read on to find out more and get ahead of that important learning curve, then do some comparison shopping.
In the mid-20th century there was essentially one major telecom provider in the USA, Bell Telephone. Then federal regulators decided to allow greater competition in that industry, a change that spawned many “Baby Bells” or smaller regional carriers. Nowadays you might have your phone service with Sprint, AT&T, Frontier, Verizon, U.S. Cellular, or any number of other competitive telecom businesses. Similarly, states have a considerable amount of regulatory power over local utilities, and many of them have, in recent years, deregulated to inspire more competition. About 24 states have deregulated the electrical industry – including New York, Texas, California, Illinois, Ohio, Maryland, and Nevada.
Ultimately, this increased competition should drive prices down for the end-user or consumer. Legendary former General Motors CEO Jack Welch, for example, told CNBC that he thinks the deregulation of utilities has gigantic potential to alter the industry. The Energy Information Administration conducted a study that predicts that competition for your dollars could cause electricity prices to fall significantly over the next decade. The concept does seem too good to be true, even though it may not yet be widespread or profound enough to have a seismic impact on the small business economy.
Energy Exchange Platforms
The basic mechanism to help pass savings on to the consumer is a process whereby energy providers negotiate prices with brokers who specialize in the electricity resale market. If they hammer out a deal for prices that are 30% below what businesses are currently paying, for example, then business owners can switch over and start buying their electricity from these discount utility providers. All they have to do is contact a broker authorized to offer those great prices.
Tor Energy, for instance, is an established broker that deals with electricity providers all across the USA. They claim to save their client’s business an average of 31% on their electrical bills. Tor Energy lists big names among the clients they serve, including Subway, Pizza Hut, Enterprise Rent-a-Car, Chevron, Shell, and Day’s Inn.
Making the Switch
Businesses that typically profit from this kind of arrangement include retail establishments, restaurants, manufacturing companies, property management businesses, and others that rely heavily on electricity. The way it works is that the energy broker gathers data on the utility usage of that business for the previous 12-month period. Then they place that information into their bidding platform where all the competing electric suppliers vie for the merchant’s business. Whoever comes in with the lowest bid wins.
In some cases, the consumer may receive a separate bill from the energy provider, instead of just one consolidated bill from their utility company. Usually, though, nothing except the price paid for the electricity will change from the customer or end user’s perspective. There will be no interruption of services and their current utility provider will continue to maintain service and bill the customer’s account.
Who Pays the Energy Broker?
The best part is that the savings might come at no cost whatsoever to the business owner. The broker earns its fees from the energy providers who win the contract to supply electricity, which is typical with most legitimate electricity brokers. One of the first questions to ask a broker, then, is how they get paid. Unless they are paid by the utility company with no fees charged to the end-user, then you may want to shop around for a different broker who doesn’t charge you a thing. Also ask if there are any set-up charges, cancellation fees, or other costs and potential charges. To be on the safe side, always consult an attorney well-versed in contract law before signing on the dotted line. You may not have to sign anything binding, however, because many brokers don’t have contracts, so homeowners can switch back to their old utility whenever they like.
Scams to Avoid
There are scams you need to avoid though, if you are in a deregulated state. You only want to deal with licensed brokerages with a verifiable and solid reputation, and you don’t want to fall for the kind of scams that have victimized residents in places like NYC. Authorities have busted con artists who lied and schemed their way into getting new customers. These scam artists claim to be with the current utility provider, and they request a copy of the resident’s recent electrical bill in order to resolve a problem. Next the scammer will either write down the account number and later switch providers with consent, or they will insist that the homeowner had to change energy providers because of some new rule or change. Some will even use scare tactics, explaining if the consumer doesn’t act fast, their power would be disconnected. If you are approached in this way contact your utility company before signing anything or showing anyone a copy of your utility bill. Call the police if you suspect you are being conned or that someone is trying to steal your private account information.
Energy providers are just one type of merchant service out there. You can get payment processing providers, utilities providers, software providers etc. How do you decide between them all? You’d usually have to go around and “shop” for the best rates and most reliable providers. However, a new wave of helpful tools have come up to allow you to compare merchant service providers online.
Using such providers can help you save a heap of time! They lay out rates next to each other so that you can make quick comparisons. Some also provide reviews from real users who have used the service. To me, this is by far the best indicator of a provider’s reliability. Go have a look around, I’m sure you’ll find something useful!