Working with a client who's considering using an energy broker here in South Dakota. The broker is asking for 30% of first year savings plus 10% of ongoing savings for years 2-5. This seems high to me but I don't have much experience with broker fees. What do you all typically see as reasonable commission structures? Client is looking at about $180K annual energy spend with Black Hills Energy.
Broker commission structures - what's reasonable?
Tom, that's definitely on the high side. Here in Kentucky with LG&E, I typically see 20-25% of first year savings and maybe 5% ongoing if there's active management involved. The 10% ongoing for years 2-5 seems excessive unless they're providing continuous monitoring and optimization services. What exactly are they promising to deliver for that fee structure?
Frank, they're claiming they'll handle all the supplier negotiations, monitor the market for better rates, and provide quarterly reports. Honestly sounds like standard broker services to me. The ongoing 10% seems like they're trying to create an annuity for themselves. I'm thinking of recommending the client negotiate down to 25% first year and 5% ongoing, or maybe just a flat fee structure.
I'd definitely push for a flat fee or lower percentages. Had a client in Virginia with Dominion Energy who paid similar high percentages and ended up spending more on broker fees than they saved on energy over the contract term. For a $180K spend, even 25% of first year could be $15-20K if they find decent savings. That's audit money right there.
Gary's right about the total cost perspective. Here in Washington with Avista, I tell clients to calculate the total fees over the contract life and compare to what they could save just by doing their homework themselves. Sometimes paying an auditor upfront for a comprehensive analysis is more cost effective than ongoing broker percentages. What kind of savings is the broker promising your client?
Jan, they're claiming 15-18% savings which would be about $27-32K annually. So first year fees alone would be $8-10K, plus ongoing fees of $2.7-3.2K per year. Over 5 years that's nearly $20K in fees. I'm starting to think this client would be better served with a one-time audit and handling supplier selection themselves.
Tom, those numbers confirm it - the fees are too high for the services described. For $20K over 5 years, they could get a thorough audit, interval data analysis, rate optimization, and still have money left over. I'd recommend getting a second broker quote or just doing it in-house with some professional guidance.
Agree with Frank completely. Down here in South Carolina with SCE&G, we see brokers trying to lock clients into these high-fee structures all the time. The smart clients negotiate hard or walk away. Energy procurement isn't rocket science if you understand the basics and have good data. Your client might be better off investing in interval metering and learning to read the market themselves.
Flo makes a good point about interval metering. That's often the missing piece that makes clients think they need expensive brokers. Once you have good usage data and understand your load profile, supplier negotiations become much more straightforward. The broker's value should be in expertise and market access, not in holding your hand forever.
Thanks everyone. I'm going to recommend the client get a second quote and consider the DIY approach with professional consultation. The math just doesn't work with these fee levels. This discussion has been really helpful in framing the decision properly.
Smart move Tom. I've seen too many clients get locked into high-fee broker relationships that end up costing more than they save. Better to spend the time learning the market or finding a more reasonable fee structure. Keep us posted on how it works out.