TEPA's Plugged In | April 2017

P R E M I E R E

I S S U E

APRIL 2017

q & a with dean pittman: a supplier’s perspective of energy procurement pg. 29

HOW emex has reimagined REVERSE AUCTION tech for energy procurement pg. 10 THE DAWNING OF SOLAR: SHEDDING LIGHT ON the single largest source of new electricity generating capacity pg. 22

ALSO: MEXICO: EXPANDING ENERGY MARKETS PG. 18 TEXAS: 85TH LEGISLATURE IS NOW IN SESSION PG. 34

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SAVE THE DATE 12TH ANNUAL TEPA CONFERENCE DALLAS - OCTOBER 4 & 5, 2017

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ETHICS

EDUCATION

CONTRIBUTORS EDITORIAL Austin Collins, Aaron Cook, Marilyn Fox, Young Kim, Kathy Grant, Dean Pittman, Matt Smith, Paul Smolen, Scott Williams COPY EDITORS Scott Black, Leslie Brinson, Aaron Cook, Shannon McGriff, Paul Ward, Anna Wilson LAYOUT AND DESIGN, TimePiece Public Relations & Marketing

ADVOCACY

NATIONAL TEPA BOARD PRESIDENT Andrew Barth, Executive Vice President of Sales - Incite Energy VICE PRESIDENT Huston Able, Vice President of Sales - Choice Energy Services SECRETARY Perry Ruthven, Managing Director - Priority Power Management TREASURER Marilyn Fox, Partner - Fox, Smolen & Associates TEPA DIRECTOR Shannon McGriff - Prism Energy Solutions NORTHEAST REGION TEPA BOARD PRESIDENT Jeff Lenetsky, PJM Sales Director - EnerNoc VICE PRESIDENT Kathy Kiernan, Senior Vice President - APPI Energy SECRETARY Bill Cannon NATIONAL AT-LARGE BOARD MEMBER Scott Heath, Managing Partner - Good Energy, LLP Paul Ward, Director and General Manager - Schneider Electric NATIONAL PAST PRESIDENT David Roylance, Co-Founder - Prism Energy Solutions NORTHEAST REGION VICE-PRESIDENT Javier Barrios, Managing Partner - Good Energy, LLP NATIONAL COMMITTEE CHAIRS MEMBERSHIP EJ Davis, Senior Energy Consultant - Choice Energy Services LEGISLATIVE AND REGULATORY Paul Smolen, Partner - Fox, Smolen & Associates STANDARDS AND COMPLIANCE Jeff Shoaf, Senior Vice President - Amerex Energy Services COMMUNITY OUTREACH Jared Patterson, Director of Energy Services - Rapid Power Management EDUCATION F. Michael Lewis, Vice President of Operations - Entelrgy CONFERENCE Shana Page, Business Development Manager - Source Power & Gas NORTHEAST REGION COMMITTEE CHAIRS LEGISLATIVE AND REGULATORY Matthew Kinney, Senior Counsel - Patriot Energy Group STANDARDS AND COMPLIANCE Craig Wall, Channel Sales and Business Development Manager Patriot Energy Group EDUCATION Ray Perry, Founder and Managing Partner - NJGEC Andrew Schecter, Regional Sales Manager - Talen Energy MEMBERSHIP Stephen King - Premiere Energy Auctions

THE ENERGY PROFESSIONALS ASSOCIATION WWW.TEPAUSA.ORG | FOLLOW @TEPA_USA Cover photo by Riccardo Annandale CONTACT info@tepausa.org

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Aggressive Energy LLC AMERIGreen Energy Cypress Creek Renewables EC Infosystems ECS Global EnerConnex, LLC ERCG GS Hall Group Mint Energy Neighborhood Energy Services Nextility Park Place Power Premier Energy Auctions PRT QuotEnergy, LLC Santanna Energy Services Shell Energy North America TrueLight Energy THG Energy Solutions

Photo by Michal Grosicki

Nineteen is such an incredible number.

Since October 2016, some incredible companies have joined our growing Association. Nineteen incredible companies to be exact. We want to welcome each one and say “thank you” for joining TEPA, for your support, and for your dedication to making this industry something we can all be proud of.

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The Energy Professionals Association

NORTHEA ST CONFERENCE SAVE THE DATE - JUNE 14, 2017 | NEW YORK CITY CONVENE CONFERENCE CENTER @ 237 PARK AVENUE

Photo by Glen McCallum

April PLUGGEDIN

CONTENTS

10 Re-Imagining the Reverse Auction

08 Amplifying Our Voice

PluggedIn will give TEPA members the voice to rise above the clutter, to spot the big trends, focus on important business models in our industry and chronicle innovations that point us in the right direction.

EMEX has re-imagined energy procurement and developed new innovations that, unlike the light bulb, may just choke off latency and remake our expectations.

18 Our Friends to the South

It’s a challenging time politically between the U.S. and Mexico. However, when it comes to energy, the two nations have never been more intertwined.

22 The Dawning of Solar THE DAWNING OF SOLAR

21 Mirror, Mirror on the Wall

We sat down with Shannon McGriff, TEPA’s new director, to find out what she has planned and how her new role will impact TEPA.

In 2016, the U.S. solar market grew 95%, following what had already been a record year in 2015. Cypress Renewables explains how it can be a part of your energy portfolio.

29 Ten Questions

We sat down with Dean Pittman, the Southwest Regional Manager at Constellation, to better understand the commodity market from a supplier’s perspective.

34 The Texas Legislature is Back

The Texas Legislature is back for its 85th session. We take an in-depth look at the PUC’s Scope of Competition and find out how competition is working in the Lone Star State.

38 Data Joyride

In this low-price commodity environment, data experts take a closer look at the future of brokering. Join them on a virtual data joyride to determine if its time for energy brokers to buy, sell or hold.

DATA JOYRIDE Photo by Samuel Zeller

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“ As an energy organization that’s made up of many of our profession’s influential leaders, we felt strongly that it’s time to amplify our voice.

“

LETTER FROM THE PRESIDENT

AMPLIFYING OUR VOICE I had the pleasure of growing up and attending college in the great state of Missouri (pronounced miz-ur-uh for those who have missed out on a visit to the great Show Me State). And deep in the heart of the “Flyover States’” ubiquitous amber waves of grain, I was fortunate to be surrounded by good, hard working, successful people. The lessons I learned are carried with me each day at my job at Incite Energy, my role as TEPA President, and will ideally be reflected over the years to come in our quarterly issues of Plugged In. You may be asking yourself, why Plugged In? Why now? Well, we live in a world that’s bombarded by news and editorial content at every turn. Some of the sources we trust. Others we question. Most we just delete.

As an energy organization that’s made up of many of our profession’s influential leaders, we felt strongly that it’s time to amplify our voice. We want to rise above the clutter to spot the big trends, focus on important business models in our industry, and chronicle innovations that point us in the right direction.

How are we going to do that? We’re going to rely on trusted sources. Namely you. Because you are “plugged in”. You’re the key tenet of the forces shaping the energy marketplace. You’re on the front lines beating back the dystopian trends that tell us that deregulation isn’t for everyone, that an open market exposes us to fraud, or that social concerns are intentionally forgotten.

For example, this inaugural issue of Plugged In is anchored in helping us better understand solar and reverse auction technology. I particularly enjoyed our feature about solar. It’s a topic that most of us are interested in, but are possibly still trying to figure out.

I’m also excited about the different voices that are being represented in this first issue. From energy retailers to research addicts, each article was thoughtfully written and carefully penned by leading voices within their fields.

ballpark. But, we know that comes with time, and not without some failures along the way.

What I will promise you is that we will always put our best foot forward. Our philosophy is to be instinctual and forward leaning. We’ll stir conversation, present BIG ideas and possibly even lead to some breakthroughs. It may be lofty, but I do feel strongly that Plugged In will bring, at least on some level, greater intentionality to our careers and business philosophies.

I only have two years to serve as TEPA President, so as they say, it’s time to “make hay while the sun shines.”

Thank you very much to everyone who made the first edition of Plugged In possible. Amplifying our voice today is more important than ever – and Plugged In is our microphone. So, welcome to our premiere issue of Plugged In – an editorial resource dedicated to giving our collective voice in the industry a tactical gambit that puts TEPA in the driver’s seat.

As for our ambitious magazine, nothing would give us greater pleasure than to hit this first issue out of the

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Andrew BARTH

They’ve made

energy procurement easier by reimagining the reverse auction

BY AARON COOK

Photo by NASA

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T

he invention of the light bulb was sheer genius. But let’s be honest, its design over the years has fallen flat. Sure, we have interesting concepts of spiral now; and if you’ve seen one LED you’ve seen them all. But reflecting back, nobody’s ever (yet) walked into my home or office and said, “hey man, nice bulbs.”

in our industry are engineering technology that’s making the process to power our universe much easier – and far more cost effective.

That’s largely because light bulbs are utilitarian. You know, purpose-built. OK, they can cross party lines (think Easy Bake Oven), but they were invented to chase the darkness from our lives.

I’ll give them credit for being pretty awesome monster fighters, too. Cartoon-themed nightlights have saved the day against many monsters hiding in wait in my kids’ closets.

In our hot energy consulting market, Energy Market Exchange (EMEX) is ablaze. Based in Texas and shrouded in an industry that’s not too sexy, the 10 year old company is taking calculated steps to make its patent-pending CRM and reverse auction technology the new standard. That’s not just important to the millions of business owners who want to get the best deal when they need to power those light bulbs, but also for the consultants who represent clients and the retailers who collectively power up this billion dollar industry.

We could, of course, fret about the design latency of the light bulb, but something else is far more remarkable - the speed at which we’re changing how we’re powering them. But not just light bulbs. Think bigger. Think the manufacturing plant where the bulbs are created. Specifically, I’m talking about how juggernauts

But one thing is certain, EMEX has built a successful tech platform that, staving off triteness here, is revolutionary for the energy market. Over the last 10 years, the company has quietly been building, testing and developing a robust CRM and reverse auction platform that is easily on the cutting edge of tech. But let’s

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If anything, the response signaled that the market was hungry for change. not get ahead of ourselves.

To understand EMEX’s market position, it’s important to know its roots.

Headquartered in the heart of Houston – a global center of all things energy – EMEX’s origins trace their way back to an inventive, independent commodities trader of the late 90s. Todd Segmond was living the trader’s life, but the unfolding energy industry was calling his name.

By 1999, California, Massachusetts, New York, Pennsylvania, Rhode Island and Texas were all (at least partially) deregulated. It was the shot heard around the energy market. A revolution was underway.

Already closely following natural gas commodities for his 9 to 5, energy deregulation opened up a new career path for Segmond exclusively in energy. By Y2K, despite all the buzz and

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commotion about the world ending, Todd forged ahead.

A decision that turned out to be the perfect precipice for Todd Segmond to jump into a new endeavor.

Over the next six years, Todd earned an impressive resume in energy. Working under the banner of energy brokerage companies who were quick to embrace deregulation, he helped build some of the industry’s most respected and savvy broker teams. It wasn’t until 2007 that the calling came to hang a shingle on his own shop.

“My success during the first six years brokering energy deals was largely due to my earlier commodities trading experience,” said Todd Segmond, CEO and Founder of EMEX. “I found that the energy procurement process was extremely lo fi and knew I could create a better, real-time solution to service accounts. I started EMEX in January 2007 with my wife and son, with the vision of creating a real-time purchasing platform for commercial energy supply. The ultimate goal was to improve the transactional experience

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and inch closer to how deals were being made in wholesale markets.”

At the time, off-the-shelf CRM software simply didn’t express the functionality or interface that Segmond needed to successfully manage his energy deals. So he did what every entrepreneur does when there’s a void – he built his own solution.

During those initial design phases, EMEX collaborated with an outside engineering firm to build its own proprietary platform from the ground up. The progress was sure and swift and within a short 24 months Todd pulled the company’s entire R&D in-house. It was an intuitive move that’s led to the

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come without challenges.

However, lasting growth isn’t achieved without setbacks to learn from. When EMEX went to market, it launched with little input from its customers.

company’s journey toward success.

“We think of ourselves as an energy ‘cyborg’. We’re one part tech expert and one part savvy broker,” Segmond noted. “We’ve used our broker experience and proprietary technology to create a platform that’s exceeded all other CRMs on the market.

We now manage front-end client transactions and host a robust back-end CRM, as well as expertly handle commissions on both the receivables and payables. Our solution was built by energy consultants for energy consultants and we’ve never wavered from our strategy.”

Growth, of course, didn’t

“We launched under the Field of Dreams mentality… meaning if you build it, they will come,” added Segmond.

Comments, indeed, poured in after that initial launch – just not with the feedback that the team at EMEX had expected.

“We had to commit to some fine tuning after version 1.0,” said Segmond. “We didn’t have to make wholesale changes or scrap it all and start from scratch. In fact, the product we introduced was a giant advance for our industry. If anything, the response signaled that the market was hungry for change.”

Based on the input, the EMEX developers retooled the interface to make it more user friendly. They also enhanced the platform’s scalability and accommodated new products and markets.

It was a tennis match for

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a time. EMEX asked for feedback and their customers (suppliers, brokers and customers) responded.

EMEX adjusted until they got it right.

“That initial launch was a great learning experience.

The quality control model that resulted from those early stages became the foundation for our model today. We go out of our way to capture input from our users before we release a new version to our customer base,” noted Segmond.

The functionality and interface that EMEX’s CRM platform now employs is one of the reasons EMEX has such an aggressive foothold in the market. The other reason EMEX is a business that matters in this industry– and why the community is buzzing about it – is because of the company’s reverse auction technology.

Reimagining the reverse auction process was in lock step with the company’s organic growth. In 2010, EMEX emerged as the pioneer for tapping into a different approach to reverse

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REVERSE AUCTION

auction bidding. With a team of in-house developers and engineers, the company was able to think for itself. Meaning, its team wasn’t influenced by existing reverse auction platforms.

Again, the model for success was to start in-house, with a blank slate and develop a completely unique reverse auction bid process. You might say EMEX reverse engineered the reverse auction to create a more stable, transparent platform.

“Think of EMEX as the Switzerland of reverse auction,” added Segmond. “You can’t find a more neutral or transparent negotiating tool. We’ve eliminated the possibility of collusion so customers and their brokers, as well as suppliers, see the true lowest price. It’s a win-win. Customers get the lowest bid that’s dictated by the market, and the retailers get to see the winning bid, so they get a fair assessment of how, or if, their rates are competitive.”

Let’s put neutrality aside for a minute. EMEX actually makes reverse auction a lot of fun to participate in.

To play, you typically need

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to command at least 1,000 mWh annually and have 15 minutes to an hour to spare.

And here’s how it works.

When a customer (or their broker) is ready to start bidding for their energy program, EMEX sets up the bid day and time and alerts suppliers (EMEX has prequalified about 125 retailers across 17 deregulated states, which is a list that continues to grow). A typical reverse auction will see up to 15 suppliers participate. Each auction opens with a 5-minute countdown. As bidding starts, suppliers have unlimited opportunities to bid and keep the bidding alive.

After the 2-minute mark hits, any new winning bid resets the clock back to 2 minutes. There’s no black out period, which means the auction keeps going as long as the bidding continues, with the auction clock continually resetting until none of the winning prices can be outbid. The vast majority of EMEX’s energy procurement reverse auctions take an hour or less.

Suppliers love this reverse auction platform, in part be-

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cause it allows them to gain market knowledge.

There’s only one winner per auction. Maybe the retailer didn’t win this one, but they saw where the winning bid hammered in at. And that data is black gold…Texas Tea for a retailer. They go home with numbers. Because EMEX’s platform hides supplier names from each other during the reverse auction, they don’t know who they lost to. But, they know by how much they lost. And in a world of razor thin margins, that kind of knowledge is empowering.

On the obverse of that coin, the customer (or broker) gets full disclosure. Meaning, the names of every supplier (by brand) who’s bidding on their procurement contract is visible. If represented by an energy consultant, the customer and the broker watch, in real time, each supplier bid and counter bid of their competitors. It’s a race down to the best possible price.

“Who thought we could make energy procurement engaging – and dare we

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say, fun!” quipped Segmond. “The beauty of our reverse auction technology is that the event is clean and transparent. We’re also leveling the playing field in a competitive marketplace by promoting fair competition. We’ve created a neutral bidding environment unlike any other. It’s a true reverse auction with no black out period. No colluding.”

All of the commotion that EMEX was making in the industry was enough to grab the attention of Brian Gould, a serial entrepreneur who found himself stuck in the gravitational pull of the energy procurement orbit. Gould, who heads up five energy-related companies under the moniker of the Gould Group, was acutely aware that his clients thought (and felt) that energy procurement was tantamount to buying a car…or worse.

“Our companies collectively analyze and manage energy for commercial real estate portfolios across the nation,” explained Gould.

“We examine each property

to expose how we can save that property money on their energy consumption.

My team looks at a myriad of factors, like building a more energy efficient roof, updating the HVAC system or conducting a lighting retrofit. I founded Choice Gas & Electric to manage the energy procurement side of our clients’ portfolios. Our challenge was finding a way to make the energy procurement process more palatable – even for us.”

In April 2014, about the same time Google announced it was sending us back in time via its launch of Google Street View’s photo archives, Brian was looking to the future. He approached the EMEX team to get a better understanding of the reverse auction process and how it might fast track his energy procurement operations.

Following a series of phone calls and meetings with the EMEX team, Gould threw his hat into the reverse auction arena. “Teaming up with EMEX to run their reverse auction for our clients has been a definitive market changer for Choice Gas &

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TODD Segmond

RYAN Segmond

DANIEL Marzuola

KEVIN McAlpin

JASON Ives

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Electric,” Gould noted. “Our job is to increase asset value for our clients’ properties and we use energy to do that. Every dollar we save by reducing their energy expenses is returned ten-fold to our client. That’s money that can be reinvested in their properties.”

Part of what Brian values most about the reverse auction process is that it’s faster than a speeding bullet. “Before tapping in to EMEX’s reverse auction, the procurement process literally took us days that could extend into weeks. Now we get a bid in five minutes - it’s an apples to apples comparison that eliminates all ambiguity. Our clients don’t assume any risk or even cut us a check if they don’t get a price they want.”

Gould’s clients who have participated in the reverse auction typically command 1 million kWh or more of electricity and somewhere in the neighborhood of 100,000 thms of natural gas.

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To date, Choice Gas & Electric has run many reverse auctions using EMEX’s platform. “I’d consider EMEX to be my back office tech team.

EMEX has fine tuned their reporting functionality to meet my clients’ needs and overall, their technology has really leap frogged us to the next level of energy procurement.”

Technology, of course, isn’t the only factor fueling EMEX’s growth. While a tech company in every respect, the heartbeat of EMEX is a team of respected energy brokers, thinkers and doers. Segmond went out of his way to lure the kind of leadership and talent that aligned with his high yield growth strategy.

Today, the company boasts respected industry veterans including the company’s President & COO, Daniel Marzuola; Jason Ives, Vice President of Engineering and a recent addition, Kevin

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McAlpin, who serves as a Vice President of Finance & General Counsel.

These three individuals along with Ryan Segmond, Chief Information Officer, are leading EMEX to new heights in this industry.

Their collective experience and business acumen allowed EMEX to achieve double digit growth over the past five years. Because of continued automation and unlimited scalability of its systems, EMEX is positioned for aggressive growth, organically and by acquisition.

Since its inception, the company has become a leading energy consultant team tactically trained to uncover the most value for customers. Sometimes that means recommending a customer stick it out with a default utility rate (i.e. one that is not a part of EMEX’s preferred supplier network). Sometimes it also means moving to a competing incumbent supplier. But

regardless of the outcome, EMEX’s confidence in the value and results of its consulting and technology platform is what has allowed the company to put something into the world that really matters.

“Our directors and pricing analytic teams consider every pricing dynamic to unlock the best fit for our clients,” said Segmond. “We also collaborate with our supplier partners to explore, as well as co-develop, products that provide greater value to our clients.”

After those intellectual processes are explored and the right procurement approach has been defined, EMEX’s tech platform is fully capable of validating a bidding process for any energy supply product and will, in turn, create as much pricing competition as the markets permits.

The company also doesn’t collect a fee or commission, unless the customer is satisfied and signs up with one of the company’s suppliers.

It’s a policy that has worked well for the company. Realizing that most brokers (small and large) don’t have the resources to pull together their own CRM and reverse auction technology, EMEX has created a white

label option.

“We’ve invested countless resources to build a system that provides value for every size broker,” added Segmond. “We’ve made it incredibly easy and intuitive for any size broker to use our CRM and reverse auction platform. We’ve created the ultimate plug and play platform that is not only scalable and user friendly, but does not require any sort of licensing or monthly fees to use – we’re completely performance driven to our partners, just like we are with our customers”.

We’re also actively exploring the opportunity to open up our platform to wholesale, utility and international markets.”

So, you can bet that EMEX will continue to re-imagine energy procurement and develop new innovations that, unlike the light bulb, may just choke off latency and remake our expectations.

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Working with EMEX also gives brokers access to more than 125 suppliers for their energy procurement deals.

Since the full suite of CRM functionality and reverse auction tech is hosted on EMEX’s servers, a broker (whether a shop of one or 100) doesn’t have to hire a team of engineers or tech staff to continually monitor and update the systems.

EMEX can take care of all that.

“EMEX is a dynamic company that’s capable of pursuing any energy related business opportunity,” says Todd. “Our future will focus on building platforms outside of commercial electricity and natural gas supply.

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MEXICO Our Friends in the South

BY MATT SMITH It’s a challenging time politically between the U.S. and Mexico.

But when it comes to energy, the two nations have never been more intertwined. As Mexico undertakes expansive reform to liberalize its energy markets, and as the U.S. transitions to being a global exporter of natural gas and petroleum products, the interconnectivity between the two is only set to increase.

Photo by Pedro Lastra

PLUGGEDIN MEXICO IS THE FOURTH LEADING Total Mexican natural gas imports from the U.S. have more than doubled in the last two years, as Mexico focuses on building out new electricity generation to replace petroleum-fired capacity. Natural gas is the leading source for electricity in Mexico, accounting for just over half of the generation mix.

Even though the Latin American nation has clean energy goals, aiming for renewables, nuclear power, efficient cogeneration and carbon-capture technologies to account for 35 percent of its electricity generation mix by 2024, natural gas is set to account for the majority of electric capacity additions into the next decade.

Last November marked a milestone in the U.S. natural gas market: it became a net exporter for the first time in nearly sixty years. Exports via the start of Cheniere’s Sabine Pass LNG terminal last February, in combination with rising natural gas pipeline flows to Mexico, has meant the U.S. now exports more than it pulls in. Withfour more LNG export terminals under construction and set to come online in the coming years, this gap is only going to

Graph 1

SUPPLIER OF

grow. Reference Graph 1.

CRUDE OIL TO According to our ClipperData, there has been 16 LNG export cargoes loaded for THE U.S.,

Mexico at Sabine Pass since the summer of last year. After a slow start, Mexico is now CANADA, one of the leading destinations for U.S. SAUDI ARABIA LNG, along with its Latin American counterpart, Chile. Reference Graph 2.

BEHIND

AND

VENEZUELA.

Historically, the U.S. has been more reliant on Mexico for energy, with imports of Mexican crude oil and petroleum products peaking in 2005 at 13.7 million barrels per day. At this time, the value of U.S. energy imports from Mexico are triple that flowing in the opposite direction.

In a swift turn of events, U.S. energy exports have surpassed the value of those arriving from Mexico in each of the last two years. This is not just due to rising U.S. natural gas exports to Mexico, but also because of falling crude flows coming the other way.

Mexican oil production peaked in 2005,

Graph 2 19

MEXICO

and has been gradually dropping ever since, now down to its lowest level in nearly forty years. Petroleos Mexicanos (PEMEX) has been the sole operator of the oil sector in the country since 1938, but amid aging oil fields and a lack of investment, production continues to drift lower.

Mexico is the fourth leading supplier of crude oil to the U.S., behind Canada, Saudi Arabia and Venezuela. As domestic production maintains its descent, export volumes continue to sink. Reference Graph 3.

A similar lack of investment by PEMEX into its refining industry has caused it to descend into a state of disrepair. Amid unplanned outages and inefficiencies, Mexico’s refinery utilization rate has dropped to its lowest level in more than two and a half decades.

While Mexican gasoline production falls, domestic consumption is moving in the opposite direction. In contrast to Mexican refineries, the U.S. Gulf Coast – where nearly half of U.S. refining capacity is – has some of the most sophisticated refineries in the world. As these refineries have expanded and improved, and as U.S. gasoline

consumption remains fairly flat, more gasoline is available for export – and is ultimately finding its way to Mexican shores.

The U.S. now exports about a million barrels per day of gasoline, as well as about 1.2 million barrels per day of middle distillates (i.e., diesel, jet kerosene). Mexico is the leading destination for both. According to our ClipperData, Mexican imports of gasoline and middle distillates have tripled since the beginning of 2014. Mexico now relies on the U.S. for the majority of its gasoline consumption. Reference Graph 4.

In stark contrast to the ongoing political tension between the U.S. and Mexico, its relationship in terms of energy flows continues to blossom. The U.S. is certainly not complaining: a seemingly ever-present U.S. trade deficit with Latin America has just flipped to a surplus, in large part due to rising energy exports to Mexico. This is a marriage of convenience: while the U.S. is gladly a recipient of Mexican crude, Mexico welcomes rising natural gas, diesel and gasoline volumes with open arms.

Graph 3

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Graph 4

Matt Smith is the Director of Commodity Research at ClipperData | www.ClipperData.com

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n January, TEPA announced that Shannon McGriff, who served as the organization’s National Conference Committee Chair, had become TEPA’s Director. This new role is the first full-time position for the organization since it was founded in 2007. We thought it’d be fun to learn a little more about Shannon’s background and her plans in her new role.

A Few Fun Facts Q: A:

WHERE DID YOU GROW UP? I was born in Virginia, but I also lived in Missouri. I moved to Texas when I was 6 and grew up in Spring.

Q: A:

WHERE DID YOU GO TO COLLEGE? I graduated from Texas A&M...Gig ‘em Aggies! During college I managed an apartment complex of 972 residents, so if I wasn’t in class, I was working. I planned a ton of social activities to help incentivize new move-ins. That’s where my passion for event planning grew.

Q: A:

BIGGEST FEAR? Spiders. They’re disgusting. Oh, and heights. They terrify me.

Q: A:

HAVE ANY HOBBIES? Does drinking champagne count as a hobby? (laughter). I was actually a very competitive swimmer through high school. I earned several college scholarships for swimming, but opted to keep swimming a personal hobby.

Q: A:

TECH YOU CAN’T LIVE WITHOUT? Definitely my iPhone

Q: A:

LAST PLACE YOU TRAVELED OUTSIDE THE U.S.?

I just got back from Iceland. It was incredible. The Northern Lights were very cool. But it was very cold!

SHANNON McGRIFF HOW DID YOU GET STARTED IN ENERGY?

WHEN DID YOU JOIN TEPA?

I was about to move to Arizona for a job out of college as a Regional Manager for a property management group in Arizona. But, my mom was determined to keep me in Texas so she reached out to her friend, Kristy Lee Norvell who helped get me my first job in the industry!

I joined TEPA back in 2012.

Paul Ward, who was President at the time, asked for volunteers and so I reached out. He put me in touch with Kelly Vannucci who was planning the annual conference - and I’ve been stuck planning TEPA’s events ever since! Ha!

WHAT’S YOUR NEW ROLE AT TEPA?

WHAT ARE YOUR GOALS FOR TEPA?

As TEPA Director, I’ll be more involved in day-to-day operations and help drive the initiatives and strategic plans of the TEPA Board. That’ll include fundraising, marketing, community outreach and implementing the education program, as well as growing national membership. I’ll continue to manage TEPA’s events both in Texas and in the Northeast.

My primary goals are education and growth. But as we expand, we want to make sure that the value we bring to our membership also grows. We’re also getting ready to launch our updated education program. We’ve been working on this new program for a while and know that it will be a benefit to all of our members.

DO YOU HAVE NEW PROGRAMS PLANNED?

WHY SHOULD MEMBERS VOLUNTEER?

Yes, we’re currently working on a new group where leaders and experts from our industry can mentor and support women.

When I first got involved in this industry there were few women in leadership roles.

That’s changed a lot over the last several years, which is why a women’s group will be such a huge advantage for women who are just getting started in their careers in energy.

I always answer that question with a question...why NOT get invoved. This is “our” industry and it’s up to us to help shape it into what we want it to become. Not only from an education standpoint, but from a networking one, as well. It’s extremely important to stay involved and TEPA is the ideal way to make the most of your career in this industry.

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THE DAWNING OF SOLAR.

Photo by Karsten Würth

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SOLAR IS SHINING BRIGHTER THAN EVER. BUT HOW DO YOU MAXIMIZE ITS VALUE?

BY SCOTT WILLIAMS

In 2016, the U.S. solar market grew 95%, following what had already been a record year in 2015. Solar was, for the first time, the single largest source of new electricity generating capacity (14.6 GWdc or 12.7 GWac) in the U.S.1 In fact, more solar was installed than natural gas, wind, or coal.

While many of these installations were driven by PURPA markets such as California and North Carolina; other states in deregulated markets, like Texas and Pennsylvania, saw significant growth as well. It’s clear that we’ll see a large number of high capacity retirements in coal and nuclear–despite the goals of the current federal administration – with new solar deployment likely replacing a large part of that reduction in capacity.

Regardless of ambitious expectations for capacity buildout through the end of the decade, solar still represents less than 2% of all electricity generation in the U.S. Despite installing more solar capacity than gas capacity, consumers might not get more electricity out of solar than out of gas.

This is because the capacity factor of solar is relatively low, at around 30%. If capacity of the solar plant is 1,000 kW, you might only see 300 kWh of energy at a given time because the facility isn’t operating all the time. While this contrasts a baseload coal plant (which operates 80 - 90% of the time), total solar capacity can operate close to capacity and often coincides with peak pricing periods.

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Interestingly, utility scale solar was 71% of all solar installations during 2016. While the utility market grew 145%, the residential and non-residential market grew 19% and 49%, respectively.1 This utility market explosion primarily stemmed from a combination of low cost utility scale solar and the expectation that the solar investment tax credit (ITC) was set to expire at the end of 2016. Over the previous two years, most solar developers and utilities scrambled to sign as many contracts as possible that delivered energy by December of 2016.

the total addressable market for these consumers (<1 MW) is massive. Currently, the biggest hurdles are lower costs and available financing.

Cypress Renewables recently rolled out a residential and commercial community solar subscription model which addresses these obstacles by taking advantage of cost efficiencies of utility scale while reducing the backend financing risk.

GW of new renewable energy PPA capacity in 2015.2 Corporate PPA Structures (Orrick) Corporate PPAs include a bundle of electricity and renewable energy credits (RECs). In the current market, there are two leading PPA structures: 1. Physical, which provides for the physical delivery of electricity, and;

According to Greentech Media, the residential rooftop market will continue to cool off, especially given that the three largest residential solar installers (SolarCity, Vivint, and Sunrun) have slowed growth in order to maintain positive cash flow.

California still represents half of all residential solar in the country, however Texas installed a new record high of 80 MW of residential solar in 2016 – far greater than the previous high of 30 MW1.1 While this is still a tenth of California’s 1 GW solar footprint, Cypress Creek sees tremendous opportunity in the Texas market given its similar market size and solar resource.

Many have postured that no single developer or installer has successfully cracked small commercial solar even though 24

Baker McKenzie: The Rise of Corporate PPAs

Corporate Power Purchase Agreements (PPA) In general, corporations have increased their purchases of renewable energy in recent years: from 2012 to 2015, contracted capacity under corporate power purchase agreements (PPAs) has doubled year over year.2 Corporate buyers (including Google, Facebook, Amazon, Dow, Owens Corning, Apple and many others) contracted for almost 3.5 Return to Table of Contents

2. Virtual, or “synthetic”, PPAs, which are based on the concept of financially settling differences between contracted prices of the fixed PPA and floating prices in the local electricity market. Both of these structures support “additionality” – deals that increase the installed renewable capacity, a key motivation and aspect of great interest to many corporate off-takers.

SOLAR

Greentech Media: Given declining solar costs, solar PPA pricing has become competitive today, even in markets like Texas where electricity pricing is at a 13 year low.

up the remaining energy needs for the customer with wind or natural gas (depending on the product).

Virtual PPAs Given that there are regulatory limitations inherent in physical PPAs, many corporate buyers are increasingly contracting through virtual PPAs. A corporate buyer might choose a virtual PPA if it has multiple distributed loads (such as a number of data centers, stores, offices) or if direct retail access is not permitted in the state where the corporate buyer’s facilities are located.

Physical PPA A physical PPA requires that electricity be physically delivered to the buyer. The most obvious example is behind the meter solar generation, where the electricity is generated and consumed on site.

While this often works for normal businesses, behind the meter roof top solutions are more expensive than ground mount utility scale projects, which achieve economies of scale (thus reducing the cost/ burden/risk of installing on a rooftop or canopy).

transfer the title from seller to buyer, and transmit the energy by – or on behalf of – the buyer to its actual location of load.

The seller also transfers RECs. In order to work around direct retail access regulations in deregulated markets, sellers and buyers can structure a “sleeved transaction” in which a REP or QSE has authorization to purchase power directly from the generator and sell to the corporate buyer. For example, Cypress Creek has the ability to sleeve its solar PPAs through most REPs and QSEs, who can then firm

Small to medium-sized C&I customers have increasingly moved away from on-site generation and are beginning to procure off site solar energy—a strategy which resembles that of larger loads (data centers, manufacturing facilities, etc).

THE BENEFITS OF GROUND MOUNT SOLAR 1 Cost competitive with natural gas and coal 2 Flexible sizing increments

These offsite projects deliver electricity to a buyer at a partic ular point on the electric transmission system (systems POI),

These PPAs enable the construction of new solar facilities without the physical delivery of energy from seller to buyer.

Typically, virtual PPAs work best when there is very active, liquid trading of electricity within the RTO or ISO. Virtual PPAs can take several forms (hedge, swap, etc), but the most common is a contract for difference which is comprised

3

Long-term fixed contracts (hedge against volatility of fuel prices and inflation)

4

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SOLAR

of the following stipulations:2 1. The buyer agrees to purchase solar energy and RECs for a fixed price.

2. Seller sells the project’s electricity (without RECs) into the market and keeps the revenue from the sale.

3. The seller transfers RECs generated to the buyer.

4. Buyer purchases electricity from local utility.

5. Buyer and seller settle the difference between the PPA (fixed) price on a periodic basis based on the brown power sold. Financial settlements typically require the buyer to pay the seller the difference between the two prices if the market price is less than the fixed price, and the seller to pay the buyer the difference between the two prices if the market price is greater than the fixed price.

Cypress Creek Renewables: Solar-plus-Storage Approach Cypress Creek Renewables builds solar energy systems in a diverse set of locations for a diverse set of customers. They believe storage offers customers the flexibility they need to realize the most value.

CCR sees Solar-plus-Storage as a way to provide the company’s utility partners with a production profile that aligns with their demand profile.

For Cypress Creek’s Community Solar projects, they use storage to create products to produce energy when customers need it. Pairing the two assets also yields savings from shared infrastructure and construction mobilization costs which all helps make Solar-plus-Storage more economically viable for their customers. For many of their utility scale projects, adding batteries to a new solar installation helps firm up that power, so the project can guarantee a certain amount of energy will be available even if the clouds roll in or the sun goes down.

services, such as voltage support or frequency response, where such markets exist. For customers where reliability and resiliency is a top priority, CCR can use solar and storage assets as part of a micro-grid to serve critical loads in areas subject to extreme weather events.

Example Market Strategy: Texas In 2016, Cypress launched the first retail-community solar program in Texas, partnering with TriEagle Energy to create the SunEagle Solar program.

The SunEagle offering is community solar done right. The program allows customers to receive energy from a local solar farm located just southwest of the Dallas Metro area, supporting local renewable energy development and the environmental and jobs benefits that come with it.

Unlike community solar elsewhere, the SunEagle program allows both residential and commercial customers to access a five-year fixed rate solar product without the headache. Customers contract with TriEagle for the SunEagle product, and get one bill that includes their share of solar production, as well as 100% renewable energy from wind and other renewable sources to cover the balance of their power consumption. By locking in a fiveyear fixed rate, residential and commercial customers can insulate themselves from volatility in the power markets and rising prices while supporting the development of local renewable energy.

For larger loads, 1 MW and above, Cypress Creek is able to aggregate load and serve these customers through a bi-lateral PPA (that can be firmed up or not, depending on customer’s preferences).

The projects below represent Cypress Creek’s 2017 pipeline of 5-10 MW distributed solar facilities.

Additionally, for utilities who face large capacity payments, the solar can be used to charge the battery during times of low capacity needs and then discharged as a form of demand response when system capacity spikes.

Energy storage can also provide various ancillary 26

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PLUGGEDIN CCR is a leading integrated utility-scale solar platform in the US. The company develops, builds, finances and operates every project to maximize value & expected 30yr+ asset life

Scott Williams is a manager on the New Market Development team at Cypress Creek Renewables | www.CCRenew.com REFERENCES 1. https://www.greentechmedia.com/squared/read/the-us-solar-markets-explosive-growth-explained 2. â&#x20AC;&#x153;Corporate PPAs: Market Trends and Opportunitiesâ&#x20AC;? by Orrick 2016

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IT’S YOUR TIME Distinguish yourself with TEPA’s Certified Energy Professional (CEP) accreditation. Learn more at www.tepaUSA.org

TEN QUESTIONS DEAN PITTMAN, SW REGIONAL MANAGER AT CONSTELLATION

“

A conversation about energy procurement from a retail supplier’s perspective

Our approach is different because we have visibility beyond the meter and into multiple parts of the supply chain.

“ What do you feel is the biggest misconception about energy procurement today?

1

The biggest misconconception is that a fully fixed price at the time of contract signing is a “low risk” option. This option is least risky in price volatility, but it can cause customers to fix costs at a high level for years. Customers could be locking in a higher cost structure than they would with other methods.

Constellation is addressing this in a few ways: First, our product offerings allow customers to select from a range of strategies. This gives our customers the flexibility to manage both price volatility and cost over time.

Second, as a company, we strive for transparency and education with our customers. We work to educate and communicate historic, current and potential future changes in the market place as well as energy procurement strategies and tips.

And third, we’re committed to helping customers manage and adjust their energy strategy. This is done through a willingness to dive into the details on any component(s) of a bill and adjust strategies to meet a customer’s unique business needs. This ensures that our channel partners and customers understand their bill and strategy so they can compare “apples to apples”.

How is your approach to energy procurement different?

2

Our approach is different because we have visibility beyond the meter and into multiple parts of the supply chain. Customers can now curtail, produce, monitor and respond to changing market conditions like never before. It’s not just about offering a price anymore.

We’re also able to offer our customers transparency, personal relationships and knowledge in addition to a robust variety of programs and services. We have an unwavering commitment to the customers and markets we serve and are transparent in the market place about the products and services we offer. By offering our customers procurement strateReturn to Table of Contents

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TEN QUESTIONS gies that meet their unique needs, we can manage not just price over a given term but also quantity (KWh) such as Peak Load Contribution (PLC) for capacity tags to reduce overall energy costs.

We’re also committed to developing “what’s next” in the industry through customer choice and innovation. As an Exelon company, we can also see beyond just energy procurement.

Our products and services are designed to give customers in competitive markets greater flexibility in managing their energy use and costs.

Entities like Constellation Technology Ventures (CTV) research and invest in emerging and potentially transformational energy technologies. This allows us to integrate them into our existing business to help transform the energy industry and offer our customers more than just energy.

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What’s your advice for new customers who’s procurement strategy isn’t working?

3

The best advice for a new customer comes from understanding where they were, where they are now and where they would like to be. Then, strategies can be developed based on how well the customer understands the available purchasing options. Understanding can go a long way when it comes to customer expectations. As a retail supplier, we would want to understand their risk tolerance, goals, and level of understanding.

From there, we can better educate, communicate and monitor a customer’s expectations and their strategy. It is not one size fits all when it comes to strategies or when it comes to making changes to better meet expectations. The result of all these components helps us determine what makes sense for each customer.

What’s the “best kept secret” in energy procurement?

4

A “best kept secret” in the industry is that when you choose your retail supplier or channel partner, you aren’t just buying a price, you’re contracting into a relationship. By understanding who you are doing business with, you can find a trusted ally with a limitless value. Constellation offers our customers products that allow them to maximize the value of their purchasing over time in both wholesale and retail markets.

Our offerings recognize the importance of weather on energy demand, integrated strategies and a variety of other components that customers must understand to find an energy strategy that best fits their unique business needs. The products we have don’t just take advantage of one market opportunity, but focus on a diversified approach that could help customers achieve a cost basis below market averages if prices begin to rise.

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PLUGGEDIN What’s your “best practices” approach to creating procurement strategy?

5

Constellation’s direct access to every part of the energy value chain gives us a broad perspective that helps our customers to strategically buy, manage and use energy. We work with customers to develop integrated energy management strategies that best match their needs and objectives. From energy procurement and renewable energy supply to demand management solutions, a diversified strategy that seeks to lower costs over time can help customers achieve budget objectives.

What’s your customers’ biggest hurdle when developing an energy procurement strategy?

6

It’s hard to get customers away from focusing on one price. They often look at price on one given day or just at one point in time versus looking at the bigger picture and thinking strategically about energy procurement over time.

A lack of general knowledge or understanding of the strategy process is also a big hurdle in this industry. The key to understanding the process is understanding the wholesale market for both power and gas. More often than not there’s an offer in the marketplace for a bid. Rare instances where supply does not meet demand generally occur during peak demand months; i.e. summer (August 2011 in ERCOT) or winter months in the Midwest and Northeast (Jan/Feb 2014 “Polar Vortex”). This is unique to most other commodities since we can’t store electricity like we would natural gas.

Taking an approach that layers forward purchases for a portion of peak month’s load can help reduce that risk. For years, we’ve seen customers with some portion of their load tied to the index. By layering, they were able to yield significant cost savings over time, most consistently in lower demand months.

7

The biggest hurdle, as it relates to risk, is understanding the retail supplier’s services and product offerings. Our products and transparent contractual relationships help protect customers from potential market risks. When customers are trying to reduce costs, they want to know what options are available.

We also offer a variety of flexible solutions. These solutions allow customers to lock in prices for an increment of their energy use and buy other increments over time based on market opportunities. This offers our customers budget stability and purchasing flexibility. Some customers may even be willing to take on greater price risk if they understand the retail supplier’s products.

It’s also important for channel partners to understand a retail supplier’s product offerings and service capabilities, too.

That way the channel partner can better match the right retail supplier to the right customer so they can accomplish the customer’s overall goals and objectives.

Is risk tolerance one of those “hurdles” for your customers

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TEN QUESTIONS

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What Constellation product or service do you feel your customers (generally) are not taking advantage of?

8

Customers could take greater advantage of our automatic/ methodical procurement programs. We’ve yet to see a customer pick the right price every time. There was always another method that could have yielded a better result. Our purchasing programs recognize that.

These products use dollar cost averaging methods to make purchases. This takes the idea of “beating the market” out of purchasing. Instead, these programs are able to channel the market’s volatility with their algorithm so that customers are getting a lower average price rather than relying on volatile market prices.

A part of why they’re not taking advantage of these programs is a simple lack of awareness. Some customers may feel that they’re losing control over the decision making. They’re used to the mindset of comparing fixed prices for 100% load for a specified term from multiple retail suppliers rather than diversified buying. Compared to a 401K, you wouldn’t purchase stock in one lump sum block. The same goes for energy buying.

By using the strategies we offer, customers maintain flexibility and control, but also gain some benefits of diversified buying.

How is your energy management program more efficient?

9

Constellation offers a lot in order to add value to our customers and that’s what allows us to advance in this industry. From our forward-looking business strategies to our product offerings, we help provide customers a better experience and outcome from their energy strategy. We manage our programs in-house so we can help customers manage procurement based on what they decide they’re comfortable with and not lock them into a strategy. This is also accompanied by a drive to continue to improve our products to best suit our customers’ needs.

Our i2i platform (Information to (2) Implementation) is comprised of several reports that can help customers manage risk over time. Reports like the Key Performance Indicator (KPI) report, Energy Strategy Planner (ESP) and more provide the customer with the information they need to make educated energy decisions.

The reports included provide a lot of comparisons and historical data to our customers. Some reports provide a comparison of forward budget assumptions vs. actual usage in terms of both price and quantity. While other reports estimate a customer’s energy spend for a defined term offixed load percentages with a low, median and high scenario based on confidence interval distribution of prices based on forward prices and historical prices. These reports in addition to others allow customers the opportunity to look at what percentage of fixed load and what percentage of open might work best for them over a given

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PLUGGEDIN period of time.

Our reports are very comprehensive. They allow customers to track their performance vs. budget in a variety of ways on a calendar month basis without having to compile the report themselves. This comparison is updated regularly based on monthly meter read dates. Then for open load, the reports available provide a forward budget view of exposure.

10

We’re placing more focus on the customer experience. From direct customers to channel partners, our end users are our customers. We want all customers to have a great experience with Constellation and find that doing business with us is effortless.

By enhancing our internal processes, providing new platforms and products for customers and dedicating resources to focus on issue resolution and follow-up, we hope to create nothing but positive interactions for our customers.

Our biggest advantage is that we focus on the customer and strive to provide education and transparency. This has gone a long way in not only what we are able to provide our customers, but how our customers understand the market. Customer understanding is key in being able to provide energy strategies that meet their budget and energy needs as well as expectations.

We’re definitely working on new and exciting products and services to offer to our customers. These products and enhancements will continue to focus on the customer experience and how we can better serve them. All of our goals focus on those end users and how their interactions with us can lead to effortless energy management and procurement.

“ We want all customers to have a great experience with Constellation and find that doing business with us is effortless.

“

How has Constellation differentiated itself and what’s next for the company?

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THE TEXAS LEGISLATURE IS BACK FOR ITS 85TH session

COMPETITION IN TEXAS IS NOW IN ITS 15TH YEAR. We walk through the PUCT’s Scope of Competition report.

BY PAUL SMOLEN

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EVERY TWO YEARS, when the Texas legislature meets, the Public Utility Commission of Texas (PUCT) issues a required report called the Scope of Competition. The report is designed to update the legislature on the depth of competition, as well as perceived problems in the market. It also seeks to

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answer any questions that have come up since the last report and suggests possible solutions…if any.

As the report notes, this is the 15th year of competition and the state of the market is excellent. The PUCT reports that wholesale market prices in Texas have fallen 21% since 2013.

PLUGGEDIN The diversity of retail electric providers and products has created a robust competitive market that continues to provide Texas customers with low electricity prices. With Senate Bill 7, the Texas Legislature put in place a foundation for a restructured electric market that continues to set the standard across this nation. Report to the 85th Texas Legislature, Scope of Competition in Electric Markets in Texas

Although, we don’t have a central database, members of TEPA can attest to a similar, if not greater drop in retail electricity prices to business and industrial customers.

Prices for natural gas have also fallen with the increase in supply throughout the country. And, since natural gas sets the market price for Texas generation, ALL prices have fallen.

WHOLESALE MARKET PRICES

in Texas have fallen 21% since 2013

Availability and reliability or “resource adequacy” (the market term for enough electricity to serve the market requirements) is the most important issue in the market – second only to prices. Over the last few years, the Commission has revised the way the Electric Reliability Council of Texas (ERCOT) measures projected generation against projected demand.

PROJECTION

The Capacity, Demand and Reserves Report is published by ERCOT semiannually and the last report projected generation capacity substantially above the projected market requirements. In fact, the projection for 2018 shows that we should have over 25% more capacity than needed.

shows Texas should have over 25% more capacity than needed

THE 2018

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While transmission congestion and resulting higher prices were an extreme problem during the height of the oil boom in West Texas, there has been a large increase in transmission investment and a reduction in demand in the oil patch. These congestion costs have decreased, but they could rise again if there is any extreme anticipated growth that is not perceived by the transmission and distribution or the other participants in the market.

PUCT ACTIONS While the Commission has taken up several important issues over the last couple years, Smart Meter Texas and the ownership of the Oncor Electric Delivery Company (Oncor) are areas that have occupied the Commission’s time.

The electric utilities in Texas have rolled out advanced or smart meters across most of The Lone Star State.

These meters allow consumers to get information about their usage in fifteen minute intervals. A consumer, or their representative, can access the information through a web portal named Smart Meter Texas (SMT), which is operated by the transmission and distribution companies.

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COMPETITION IN TEXAS

There’s been a great of deal of discussion over the last five years about the way the portal is operated. Also a discussion point is what information can be made available to the users of SMT so that the information is accurate, timely and maintains the privacy rights of the consumers.

Texas law states that the end-use consumers own the data.

SMT has developed a way for consumers to get their own data or designate a “third-party” to receive the data on their behalf. While the process for aggregators, brokers and consultants to obtain the data has become more streamlined over the years, the process is still more burdensome than the Letter of Authorization that has been used since the market inception and is still used to get monthly consumption data.

TEPA has maintained that there is no reason to make the process overly burdensome to consumers and that burden has been reflected in the very low usage rate by Texas consumers.

with the transaction. The hearing was held on February, 21, 2017.

LEGISLATIVE RECOMMENDATIONS The Commission has made recommendations to determine eligibility for low-income programs and repeal the mandates for natural gas and renewable energy use, due to the large and increasing use of natural gas and renewables in the electric marketplace. They have also asked for the ability to issue “advisory opinions” while could clarify the Commission’s positions on various issues without lengthy and costly regulatory proceedings.

The PUCT has also asked the legislature to designate itself as a self-funded agency and directly receive funds from the Gross Receipts Assessment. The GRA is one-sixth of one percent that is collected from public utilities, electric cooperatives, retail electric providers and interexchange telecommunications carriers.

The ownership and operation of the Oncor Electric system, the most valuable asset of the company that is in bankruptcy, has also occupied a considerable amount of the Commission’s time and efforts. In March 2016, the Commission approved the purchase of Oncor by the owners of Sharyland Utility, but there were conditions required by the Commission and the applicants declined to go forward.

CONCLUSION As we all know, competition is working and consumers have benefited from lower electricity prices and knowledgeable third-parties guiding them through the process. Smart Meter Texas and the data that is available should usher in a new era of consumer-driven participation in the market, shifting their demand thus lowering their transmission and distribution charges and reducing the need for additional generation.

NextEra Energy, the owners of Florida Power and Light and the REP previously known as Gexa Energy, have received permission from the bankruptcy court to purchase the entity and have now applied to the PUCT to go forward

Distributed generation, while not mentioned in the report, was taken up at the Commission and will also improve market reliability and reduce the need for large central generation and additional wires, but we will cover that another time.

Paul Smolen is a partner at Fox, Smolen & Associates and serves as TEPA’s Legislative & Regulatory Committee Chair www.FoxSmolen.com

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DATA JOYRIDE

BY YOUNG KIM

In this low-price commodity environment we take a close look at the future of brokering. Join us for a virtual data joyride to understand if its time for energy brokers to buy, sell or hold.

Photo by Samuel Zeller

PLUGGEDIN

The traditional energy broker model has come under pressure in mature markets and commercial customer segments. However, positive trends in operating efficiency, bundling, and offer innovation promise to propel the ABC sector into the next stage of energy professionalism.

Market Outlook Currently, a total of 22 US jurisdictions allow some form of retail electric choice. Over the next five years, ERCG does not forecast any major new US markets opening up in our base case. The outlook for retail power markets is flat. In the past, suppliers and brokers were able to depend on growth aided by either 1) policy changes (e.g. rate cap expirations) that improved retail market attractiveness or 2) market shocks (e.g. shale gas boom) that dramatically lowered the cost of power supply. In 2016, ERCG estimates the total switched market stands at 803 TWh, which is 56% of the total eligible market of 1,425 TWh. With President Trump and a Republican-controlled Congress, pro-business policies are expected to yield modest gains in the overall size of the market. The manufacturing sector will see some recovery, but progress on energy efficiency technologies and implementation will result in lower usage by smaller customer segments. By 2021, ERCG forecasts the eligible market to grow by 2.3% with the non-residential market growing at 5.3%, offset by a -3.9% decline in the residential market. We expect switch rates to remain stable over the forecast period, ticking up slightly to 57% or 837 TWh competitively served. (Graph A)

Better Story for % ABC Forecast Despite the challenges in the underlying US energy market, the ABC segment has a rosier outlook. Past success in the third-party channel has helped suppliers reinvest in ABCs. Low barriers to entry and consistent savings opportunities for end customers has helped ABCs grow their share of retail energy volume while maintaining healthy fees and margins. In 2016, ERCG estimates that ABCs will broker approximately 495 TWh of competitive power. Deals transacted through ABCs account for between 65-75% of non-residential sales and between 30-40% of residential sales. By 2021, ERCG expects the ABC share of non-residential to reach 70-80% and residential share to grow to 35-45%. (Graph B)

Savings Analysis: ABCs and Retailers Deliver Results. Empirically.

In order to estimate the savings achieved through competitive retail markets, ERCG analyzed the rates that customers paid to retail suppliers and compared them to utility rates in the 14 most developed retail markets (except Texas, where there is no utility default service). ERCG has calculated that between 2011 and 2015, residential and commercial customers have saved a total of $22 billion by switching from the utility. Savings vary by customer segment and jurisdiction, but commercial customers typically have the most

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DATA JOYRIDE

Graph A to gain from shopping, especially with the majority of the commercial market being supported by ABCs in their procurement process. Another key driver of savings is the type of utility default rate design, with several Midwest markets tilting in the favor of switching customers in recent years.

Challenges The financial success and low capital risk of ABC activity has attracted many new players.

Over one-third of ABCs report encountering some form of competition on deals. This suggests that letters of exclusivity (LOEs) with customers may not be enforced or that there are multiple LOEs in place with the same end use customer. Or that LOEs were never entered into at all. (Graph C)

Customers Termed Up. Low Prices = Long term deals In addition to increased competition, in many markets ABCs have fewer eligible customers to choose from. For example, in Texas where power prices have been at long-time lows, many attractive commercial and industrial customers have elected to contract for as long a term as possible. In other words, these customers and their large volumes won’t come up for renewal for 3-10 years. The situation is often worse among public customers which are able to contract for even longer terms.

Opportunities Despite and because of these challenges many ABCs are embracing opportunities in new geographic territories, products and services.

Natural Gas Opportunity For example, natural gas procurement is available in as many or more territories and customer segments than power. While products, suppliers and expertise may differ, many ABCs find the ability to pitch “dual commodities” increases their customers’ loyalty and

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PLUGGEDIN

Graph B level of partnership with suppliers. In our recently completed natural gas ABC study, we reported that on average 40-50% of the C&I market is conducted through ABCs. The gas market is still relatively underserved by brokers.

Non-Commodity Beyond the commodity sale, ABCs have added other products and services. These include onsite generation (especially solar PV), energy efficiency (especially Graph C lighting retrofits), energy data management/auditing, and other related services. In general, the traditional partnership with retail suppliers has not translated as well to these other services. ABCs often provide these services directly or through other vendors.

Operating Efficiency A third reason for optimism in the ABC sector is the recent broad investment in operating efficiency. Successful ABCs with efficient back office processes are beginning to acquire other ABCs or contracting to provide support. Entrepreneurs are also offering technology to ABCs to improve internal operations and provide service and value to end customers.

Conclusion: Stronger Together In conclusion, ERCG points to consistently high volume penetration rates for the ABC segment (and growing), new M&A activity and high levels of supplier support as evidence of a healthy ABC segment. This success would not be possible without delivering value to the end customer in the form of expertise and savings. ERCG looks forward to maintaining our partnership with TEPA and its members to foster this value and innovation in energy markets.

Young Kim is Principal at Energy Research Consulting Group | www.ERCG-US.com Return to Table of Contents

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