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socrateaser
socrateaser, Attorney
Category: Business Law
Satisfied Customers: 38502
Experience:  Retired (mostly)
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What are the legal issues in signing up individuals for gas

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What are the legal issues in signing up individuals for gas and electric through a separate company that purchases electric and gas for the grid. Precisely what service do those companies provide for the individuals?
It would appear that the vendor is attempting to act as a public utility, without actually providing any infrastructure.

This is the "Enron" model, which as you may be aware, turned out to be a house of cards, because the traders employed by the corporation bought and sold energy and lost all of the corporation's and investors' money in doing so.

The principal legal issue is whether or not this sort of business enterprise is lawful in the state where the sales are taking place. There may be specific laws prohibiting a business from buying and selling accounts for a profit (this is similar to someone increasing the cost of a real estate transaction by charging a referral fee for no actual real estate settlement services -- which prohibited under RESPA federal law).

Since there is no federal prohibition on this activity, the issue devolves to the state in which the activity takes place. It may be perfectly legal -- or not, dependent upon state law.

Re services provided, the only real service is the ability to negotiate with the public utilities for a lower price, which if the vendor can make the margin large enough, it could pass the savings to the end user and then pocket any difference as profit.

In reality, actually extracting a profit from this sort of transaction is usually impossible, which is why Enron went bust. It's mostly "smoke and mirrors."

Hope this helps.

NOTICE: My goal here is to entertain while educating the public about the law. I hope my answer is useful and informative to you. During our conversation, the website may ask you to rate my answer. If you rate my answer lower than the middle rating, then the website retains your entire payment, and I receive nothing. It is entirely your choice as to how you rate my answer. However, because your payment to me is in the nature of a donation/gift, rather than as compensation for any services rendered, you are entitled to know how your rating affects the final distribution of your donation.

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Customer: replied 4 years ago.

Just so I understand, do these companies make money by negotiating with public utilities for lower prices and then pass on the savings, or since extracting a profit is usually impossible, do they make money from the members by membership fees and service fees to the members ?

I think that they make money from working both ends of the revenue stream. Whether or not this is a benefit to the end user is the ultimate question. And, it's not a question that I can answer definitively -- though that seems to be what you're after. Each organization must be considered on its own merits.

It's just my general experience that business models that have brokers inserted into the mix usually add to the cost of services, because the broker must be paid. So, unless the broker's value add is worth the cost of the services rendered (whatever that service may be), then the model is deceitful, because the broker is actually unnecessary.

Hope this helps.

NOTICE: My goal here is to entertain while educating the public about the law. I hope my answer is useful and informative to you. During our conversation, the website may ask you to rate my answer. If you rate my answer lower than the middle rating, then the website retains your entire payment, and I receive nothing. It is entirely your choice as to how you rate my answer. However, because your payment to me is in the nature of a donation/gift, rather than as compensation for any services rendered, you are entitled to know how your rating affects the final distribution of your donation.

If you need to contact me again, please put my user id at the beginning of your question ("To Socrateaser"), and the system will send me an alert. Please Click the following link for IMPORTANT LEGAL INFORMATION. Thanks and best wishes!

socrateaser and other Business Law Specialists are ready to help you
Customer: replied 4 years ago.

Yes I did and I left you a too. Thanks.