Got approached by an energy consultant who claims he can reduce our Xcel Energy bills by 15-20% through rate optimization and efficiency measures. Sounds good but he wants 50% of the first year's savings as his fee. For our operation that could be $25,000-30,000. Is this a typical fee structure or is he trying to take advantage? We're currently on the SG rate schedule and our monthly bills run about $18,000. Anyone worked with consultants on similar arrangements?
Consultant wants 50% of first year savings - is this normal?
Carl, 50% seems really high to me. Most energy consultants I've worked with in Georgia charge either a flat fee for the analysis or around 20-30% of first year savings. Fifty percent sounds like someone who either thinks he can deliver huge savings or is just being greedy. I'd ask him to break down exactly what services he'll provide for that fee. Also make sure any agreement specifies how savings will be calculated and verified - you don't want disputes later about whether he actually delivered what he promised.
That's definitely on the high end. I've seen performance-based consulting fees range from 15% to 40% of first year savings, but 50% is pushing it. The question is whether he's providing ongoing services or just a one-time analysis. If he's going to monitor your account, help with future contract negotiations, and provide ongoing optimization, maybe it's justified. But if it's just changing your rate schedule and walking away, you're probably paying too much.
I'd be very cautious about any consultant charging that much without a detailed scope of work. Here in Philadelphia I've seen too many cases where consultants promise the world and deliver basic rate schedule changes that customers could have done themselves. Ask for a written proposal outlining exactly what analysis he'll perform, what recommendations he expects to make, and how he'll measure success. If he can't provide that level of detail upfront, find someone else.