What Is An Energy Broker License?
Energy broker licenses allow companies or individuals in deregulated states the ability to negotiate the purchase of electricity or natural gas between a customer and a supplier. Often times, energy brokers earn income by adding margin or broker fees to the supplier’s rate. Most states require that a broker hold a license in order to transact in this manner.
Bonding & Financial Requirements
Energy broker licenses also protect the consumer. In most states, energy brokers must pledge a letter of credit or bond with the state. The monetary commitment gives consumers the right to recoup damages that a broker might cause. Like an insurance policy, customers can sue brokers for wrongdoing and pursue their bond value or letter of credit.
Brokers are also required to display a certain amount of financial strength in order to obtain licensing. Most state public utility commissions do not want just anybody to have a broker license. Companies must prove that they are established and able to service customers.
In some states, like Pennsylvania, brokers must apply to transact business within certain utility territories. Although the Pennsylvania energy broker license application is a single application, brokers must announce their intent to work in certain PA utilities by taking out newspaper ads. A broker in PA can be licensed to transact business in PECO, but not licensed to transact business in Duquense Light.
Energy Industry Experience
In most broker applications, the broker’s executives and management team must display and prove their energy experience. Again, public utility boards do not want to grant licenses to businesses and individuals who cannot meet the needs of their customers and serve them properly. All brokers must prove their acumen and ability to provide quality solutions to their potential customers.
Do Energy Consultants Need Licenses?
Unlike energy brokers, energy consultants and energy consulting companies often operate in a different fashion. Most energy consultants charge fees directly to their customers or clients in exchange for advice, guidance, and other services. Since energy consultants do not add margin to energy supply rates, most states do not require them to hold a broker license. Should a consultant wish to partner with an energy supplier and get compensated by the supplier, then he might need to apply for an energy broker license.
What States Require Energy Brokers To be Licensed?
In many deregulated states energy brokers are required to apply for licenses for electricity sales, natural gas sales, or both. Most states require the broker organization to be licensed and allow their agents and salespeople to operate under that license. Other states, such as New York, are considering requiring the individual salesperson to also hold a license. Here is a complete list of deregulated energy states and their broker licensing requirements.
Licensure in these states is regulated by each individual state’s public utility commission and sometimes a financial requirement, such as a bond, is needed. Other deregulated states, do not require energy brokers to be licensed in order to sell electricity or natural gas on behalf of retail energy suppliers. Please reference the key below when viewing the list.
- License Required: An energy broker’s license is required to sell either commodity. In these states, energy brokers are mandated to apply for a broker’s license. Most states have a rigorous application process that requires the broker to prove its financial strength and energy industry experience.
- No License Required: The state is deregulated for this commodity, but a broker’s license is not required to operate. In these states, energy brokers are not required to obtain licensure. Since all retail energy suppliers are licensed, these states allow the suppliers to determine the brokers with whom they will work and do not require the brokers to get licensed.
- Limited Deregulation: The state offers limited deregulation and due to this a broker’s license is not required. Most states with limited energy deregulation legislation do not require energy brokers to be licensed. States such as California and Michigan have limited energy deregulation.
- No Deregulation: The state is not deregulated for this particular commodity. In regulated states, energy brokers cannot resell electricity or natural gas since local utilities still hold a monopoly over the market. No license is required since brokers cannot operate in these territories.
In the table below, we display all deregulated states and the broker licensing requirements:
There are many challenges when it comes to applying for and maintaining a license. In many cases, newer energy brokers benefit more from partnering with a larger brokerage company that can help them with their operations. Here are some of the reasons not to pursue an energy broker license:
- Licenses Are Challenging To Maintain: Since each state has different reporting requirements, it can be difficult to maintain and keep your energy broker license active. In fact, larger brokers even have regulatory staff to ensure that their broker licenses remain in good standing.
- Supplier Relationships: Since larger suppliers will not work with just any licensed broker, it can be challenging to secure relationships with all energy suppliers. For this reason alone, many newer brokers elect to work under a larger broker organization rather than obtain their own licensing and work with suppliers directly.
- Payroll: Another challenging aspect of running your own energy brokerage is meeting the payroll demands of your salespeople and sales agents. Many sales partners are looking to be paid quickly, and as a new broker most suppliers will only offer residual commissions until you are more established.
If you are thinking about applying for your own energy broker license, there are many things to consider. First, you need to decide if getting a license is right for you and your business. Since many energy suppliers will only work with more established brokers that have a certain amount of sales volume, it might be worth considering working as a sub-broker under a larger nationally-licensed broker. Let’s first explore the challenges of getting a license.
How To Obtain An Energy Broker’s License
If those reasons did not deter you from pursuing your dream of becoming a licensed energy broker, then here are the steps you need to take to get your energy broker’s license:
Learn About Your State’s Licensing Process:
Whether you are looking to apply for a license in one state or many, you must first understand the application process. Some states have simple applications with no financial commitments, while others have very in-depth application processes. It’s best to first outline all of the steps you must take before applying for your license. These requirements can be found on most state websites.
Get Your Documents In Order:
Next, it’s important that you gather all of the information necessary for your application. Some important things you will need are your Articles of Organization, your Operation Agreement, profiles on each Executive, your Business Plan, your Marketing Plan, and more. Each state will require different types of documentation, so be sure that you have everything in order before beginning your application.
Consider Hiring An Attorney:
Since most energy broker applications are cumbersome, many energy brokers decide to hire legal counsel to help them complete their applications. There are many law firms that specialize in PUC law and helping energy companies with licensure. This could cost you anywhere between $5,000 to $25,000 dollars depending on the attorney’s fees. It could be even more expensive if you are planning on applying in multiple states.
Complete Your Application And File:
Now that you’ve decided how you would like to apply, it’s time to complete your application. Make sure you are extremely thorough and answer all questions accurately and completely in the application. If you do not, the utility board might ask you to re-file or amend you filing in order to move forward. Be sure to note your state’s filing instructions as each state has certain nuances in their filing process.
Whether you are a brand new energy broker company looking to get a license or a seasoned organization expanding to a new state, the energy licensing process is important to the industry. Licensing ensures that only qualified companies and individuals are able to offer energy services to customers in their states. If you need guidance on an energy broker license application or would like to learn more about our broker partner program, contact us to schedule an appointment. We offer brokers that are looking to scale nationally a turn-key opportunity that does not require a cumbersome licensing process.