DRIVING ELECTRIFICATION Inside Ford Motor Companyâ&#x20AC;&#x2122;s Race in the Electric Vehicle Market
Growing a Business In Energy Retail A Deep Dive Into Broker Trends The Collaborative Approach To Deals
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EDITORIAL CONTRIBUTORS Scott Black, Aaron Cook, Geno Cortina, Marilyn Fox, Kathy Grant, Young Kim, Shannon McGriff, Matthew Salera, Paul Smolen, Cristina Sanders, Jackson Vo COPY EDITORS Scott Black, Leslie Brinson, Aaron Cook LAYOUT AND DESIGN, TimePiece Public Relations & Marketing
NATIONAL TEPA BOARD PRESIDENT Huston Able, Exec. Vice President - Choice Energy Management VICE PRESIDENT Javier Barrios, Managing Partner - Good Energy, LLP SECRETARY Perry Ruthven, Managing Director - Priority Power Management TREASURER Marilyn Fox, Partner - Fox, Smolen & Associates TEPA DIRECTOR Shannon McGriff NORTHEAST REGION TEPA BOARD PRESIDENT Craig Wall, Dir. of Supplier & Prod. Mgmt - Patriot Energy VICE PRESIDENT Mike Payne, Managing Partner, APPI Energy SECRETARY Bill Cannon, Dir. Northeast Markets - Legend Energy Advisors NATIONAL AT-LARGE BOARD MEMBER Paul Ward, Director and General Manager - Schneider Electric NATIONAL PAST PRESIDENTS Andrew Barth, Partner - CSD Energy Advisors David Roylance, Co-Founder - Prism Energy Solutions NORTHEAST REGION PAST-PRESIDENT Javier Barrios, Managing Partner - Good Energy, LLP NATIONAL COMMITTEE CHAIRS MEMBERSHIP Andrew Barth, Partner - CSD Energy Advisors LEGISLATIVE AND REGULATORY Paul Smolen, Partner - Fox, Smolen & Associates STANDARDS AND COMPLIANCE David Roylance, Co-Founder - Prism Energy Solutions COMMUNITY OUTREACH Sarah DeVon, Director Structured Solutions - NRG EDUCATION F. Michael Lewis, Vice President of Operations - Entelrgy CONFERENCE Shana Page, Manager of Sales - Freepoint Solutions NORTHEAST REGION COMMITTEE CHAIRS LEGISLATIVE AND REGULATORY Matthew Kinney, Senior Counsel - Patriot Energy Group STANDARDS AND COMPLIANCE Craig Wall (Interim) EDUCATION Ray Perry, Founder and Managing Partner - NJGEC MEMBERSHIP Stephen King - Premiere Energy Auctions ILLINOIS CHAPTER OF TEPA David C. Weirs, President - Satori Energy
THE ENERGY PROFESSIONALS ASSOCIATION WWW.TEPAUSA.ORG | FOLLOW @TEPA_USA Cover image: Ford Motor Company. Photography courtesy of Filip Bunkens, Frank Chamaki, Nathan Dumlao, Roger Erdvig, K Mitch Hodge, Sara Kurfess, Enrique Macias, Andrew Neel, Glen O, Tatiana Rodriguez, Taylor Vick, Avi Werde, Lacey Williams on Unsplash.com CONTACT firstname.lastname@example.org
Tech’s more subtle side has a way of helping us grow as humans and live more socially responsible without shoving it in our face.
A CONSEQUENCE OF TECHNOLOGY
ot to sound like a luddite, but it really does feel like civilization is accelerating at quantum speeds these days. Maybe that’s a consequence of the technology that’s pushing us to be “next gen Americans”. Social media, data tracking, security hacks, emails, texts, video conferences, mobile apps – it’s a lot to consume. And yes, sometimes it’s something worth worrying about.
But I think it’s OK to let tech be in charge of certain aspects of our lives. Especially when we’re stuck on autopilot navigating daily deadlines and deals. Tech’s more subtle side has a way of helping us grow as humans and live more socially responsible without shoving it in our face. Take electric vehicles for example. The electrification of the automobile is not only driving better battery innovation, but also opening doors for us to be better environmental stewards. Our cover story, Driving Electrification, features a healthy conversation with Cristina Sanders, Ford’s U.S. Consumer Marketing Manager for Electric Vehicles. She let us in on how the EV market is evolving, and why that conversation is meaningful to us as energy professionals. What can business leaders on both sides of the energy deal learn from a relatively new upstart supplier? A lot. Jackson Vo and Geno Cortina laid out a few simple business principles that are helping Freepoint Energy Solutions grow in a competitive market where margins are increasingly becoming tighter. If you’re looking for a deep data dive, Young Kim’s article is a carefully curated tale of numbers and figures that paint a clearer picture of what’s really happening in today’s energy broker community.
But, the people who are driving innovation are a lot like you and me. They’re just helping drive the conversations that really matter – especially as we shift deeper into a world where the lines between digital and physical are blurred. And we’re staying on top of it. We’re taking these conversations out of your blindspot so you can be a more effective energy professional. We look forward to seeing you at this year’s marquee TEPA event, our national conference in Austin at the new Hotel ZaZa. From community service projects to golf and wine tasting to a full day of speakers – this year’s conference will be an incredible opportunity to give back to the community, network with your peers and hear from some of the best in this industry. Huston Able National TEPA Board President
CONTENTS SEPTEMBER 2019
08 - driving electrification
18 CHORD PROGRESSION
24 ENERGY BROKER TRENDS
28 COLLABORATIVE APPROACH
Inside Ford Motor Company’s Race in the the Electric Vehicle Market
Chevy Silverado…Pontiac Firebird…….Honda Accord……Jeep Wrangler (too easy)…hmmmm..……… Monte Carlo SS ……………………Ahww, dang. That’s a Grand National. Shoot! Every summer I’d visit my grandparents in East Texas. Our route was always the same. Highway 80 straight east out of Dallas. In those days, people still drove for the journey. Dad would set the cruise at 55 and our Lincoln Continental Mark IV would get us there - slow and steady - in just over 3 hours. I was small enough to curl up between the transmission hump and the door. It was warm on the floorboard. I’d soak up the hum of the engine and listen as my mom read stories out loud from the Reader’s Digest. But I couldn’t wait for it to get dark so I could play my favorite game – “Headlights at Night”. I’d name the make and model of vehicles barreling towards us based only on their headlight shape. BMW 3 Series…….Datsun 280ZX (oh man, I really want one of those)…..Ford Mustang. Wow, I could do this for hours. Fast forward to 2019. That little guy, who snacked on M&Ms that he stashed in his top secret compartment (i.e. the ash tray) and waited anxiously for the next set of headlights to whiz by, is still inside me. So I was excited when Cristina Sanders, part of Ford Motor Company’s charge for electric vehicle sales across the U.S., agreed to talk with me about this (still very young) vehicle market. It also presented an incredible way to blend my love of cars with another passion – energy. Cristina called from her Detroit office where she serves as Ford’s U.S. Consumer Marketing Manager for Electric Vehicles. “Before coming to Ford, I was working for a design agency,” she mentions, “so the idea of design-thinking was something I was already very familiar with. I was initially tasked with looking over the strategy of Ford’s electrified portfolio, which includes 8
BY AARON COOK
Ford’s 2020 Escape (above) Hybrid models offers four new propulsion choices – including two all-new hybrids; standard hybrid targets best-in-class EPA-estimated range of more than 550 miles; plug-in hybrid targets a best-in-class EPA-estimated pure-electric range of 30+ miles. Ford’s 2020 Explorer hybrid (below) with rear-wheel drive, is rated for 27mpg (city) and 29mpg (highway) with a 5,000 pound towing capacity when properly equipped.
hybrids, plug-in hybrids and also our line of all electric vehicles. We looked at the portfolio from a very holistic perspective and determined the best way to communicate and message our vision to buyers.” Earlier this year, Cristina switched from working in that holistic position to a more “drilled down” role as the marketing manager of Ford’s all electric U.S. division. While the shift to focus on all-electric vehicles was a change for Cristina, it doesn’t mean Ford is stepping away from hybrid development. “We’ve chosen a broader approach to electrification,” she adds. “We’re taking some of our more popular vehicles, like the Explorer and Escape - even Ford’s Police Interceptor – and engineering them as hybrid vehicles. We have a very strong hybrid portfolio, which is nicely complemented with our hybrid plug-in models, including the Escape and Fusion. We have also launched the new Ford Police Interceptor Utility Hybrid that offers great pursuitrated performance while offering police departments and municipalities’ significant fuel and money saving opportunities.”
Tesla, the current perceived (and arguably the true) frontrunner in the EV space started selling its Roadster more than a decade ago. Since then, the company’s sold (best guess) over 500,000 cars worldwide. Whether or not those have all been delivered and are on the road or not, is up for discussion. Tesla overcame countless hurdles and, for all intents and purposes, has established the direction of the EV market. Unfortunately, for the past year or so it’s been kind of a bumpy road for Tesla. And while Telsa’s been trying to catch its breath, manufacturers like Volkswagen, Hyundai, Ford and countless other startups have been narrowing the distance. Having been founded in 1903 by one of the greatest thinkers of our time, Ford has a rich history steeped in forward-thinking innovation. In fact, one of the biggest innovations on the racecar “999” was a porcelain covered sparkplug that made the vehicle’s electrical system
more reliable. The EV market is simply the new chapter in the company’s century-old journal. Today there are literally thousands of people at Ford devoted to working on vehicle electrification and battery technology. In fact, just two years ago, Ford created Team Edison – a global team assembled for the sole purpose of focusing on battery technology and electric vehicles and to think big and move fast to deliver vehicles and experiences that are uniquely Ford and human centric in design. It was more akin to a well-organized startup within the larger Ford company. Jim Hackett, the current CEO of Ford, has also initiated a more robust conversation about hybrid and electric vehicles to the company dinner table. But it’s not just talk. A little over a year ago, the company announced an investment into the development of EVs to the tune of $11 billion. On top of that, the Blue Oval also invested another $500 million into Rivian, a startup based in California. “Design thinking is one of the big cultural changes he’s brought to Ford,” Cristina says of Hackett. “He’s encouraged us to think from a more ‘human centered’ design perspec Cristina Sanders, Ford’s U.S. Consumer tive. We’ve always had a Marketing Manager for Electric Vehicles customer-first approach. But now we’re really putting the customer at the “WE’RE REALLY PUTTING THE CUSTOMER forefront of everything we AT THE FOREFRONT OF EVERYTHING WE do - like more rapid prototyping and building more DO - LIKE MORE RAPID PROTOTYPING AND cross-functional teams BUILDING MORE CROSS-FUNCTIONAL TEAMS so we can get to deciSO WE CAN GET TO DECISIONS FASTER.” sions faster. He’s not only changed the way we work at Ford, but the way we think about the future.” Advancing technology, like home charging stations, and less expensive batteries are helping the market grow. There’s an increasing number of government regulations, especially in certain states, that are fueling the demand for zero emissions vehicles. The states where regulation is happening fastest are referred to as ZEV (Zero Emission Vehicle) states. It may come as no surprise that California, which is widely known for its progressive stance on environmentally friendly policies, is leading the charge. All of these “ZEV states” follow the California Air Resources Board program, which requires all OEMs to sell a
certain number of all-electric or plug-in hybrids in order to get credits. There are 9 other states (Connecticut, Maine, Maryland, Massachusetts, New Jersey, New York, Oregon, Rhode Island and Vermont) that have adopted the ZEV program.
Evolving technology - especially in terms of battery size and range - is also advancing the EV market. Before talking with Cristina I had no idea “range anxiety” is a thing. But the more you dive into EVs the more you realize how many misconceptions there are about just how far you can go in one. “Range will ultimately depend on the vehicle and battery size,” says Cristina. “When our new all-electric SUV is launched next year, it will have a 300 mile range – even though a 250 mile range is fairly standard in the market today. But that’s far beyond what a typical customer would need on a daily basis. Most people on an average probably don’t drive more than 50 miles a day, so a 300 mile range is fine for the majority of driving. But what about those long road trips to East Texas to visit your grandparents? The infrastructure and charging network is still a sticking point for many customers when deciding whether or not to buy an EV. “We’re doing a lot of work educating consumers about the charging networks, the different types of charging and how charging your EV won’t be any more difficult than getting gas – and may actually be easier,” she says. Of course there are always those who fail to plan for longer trips. But that’s not isolated to electric vehicles. I mean, how many times have you seen drivers walking down a highway with a red can because they ran out of gas? The difference is, it’s still easier (as of today) to find a gas station than a DC fast charging station. But Ford’s prepared for the worst of us. “As with gas vehicles, there’s a gauge that shows you how much range you have left. When you start to get low, you’ll find a place to plug in,” said Cristina with a subtle laugh. “At Ford, we are relentlessly working towards making this experience hassle free for the customers. We have got their commute covered.”
And what’s the burden all this charging is going to do to the grid? What happens when its 107 degrees outside and the grid’s already at capacity when everyone’s headed home to plug in their EVs? Ok, so I went to the doomsday scenario. Honestly, there aren’t enough EVs on the road currently to significantly impact the
grid. But companies like Ford are working closely with utilities to make sure that doesn’t happen. “As the EV market grows, there will naturally be more demand on the grid,” says Cristina. “We’ve partnered with utility companies to think through smart charging, like when is the best time to charge. So it’s not necessarily that everyone plugs in when they get home. You can, for example, set your vehicle to charge at an off peak time, or what percentage you want the vehicle to be at the next time you want to drive. So we are definitely creating solutions to reduce the stress on the grid.” Fortunately, we’re still ahead of the curve when it comes to demand on the grid. But the conversation is being held. And the right questions are being asked by the right people. And what about the “green” factor of EVs. Are EVs really better for the environment? There’s still a lot of discussion swirling around the disposal of EV batteries. “On a whole, electric vehicles are cleaner than a traditional gas-powered vehicle,” Cristina says. “Even with the same development cycle as traditional vehicles, they’re still a cleaner technology than a gas powered engine. Ford is very focused on sustainability and the environmental impact of all our vehicles.We are committed to “WE’RE ACCELERATING OUR GROWTH reducing emissions from our vehicles through our $11 bilAT THE RIGHT TIME. WE THINK THE lion commitment to deliver ELECTRIFICATION OF OUR SUCCESSFUL, new hybrid and electric veICONIC VEHICLES IS WHAT’S GOING hicles globally by 2022.” Cristina points out that the TO DIFFERENTIATE FORD MOVING bigger picture of sustainabilFORWARD.” ity of EVs is found in their zero emissions. And when you charge at stations sourced from renewable energy like wind and solar, the carbon footprint of an electric vehicle is even smaller. Ford has gone a step further and partners with a non-profit
in California, VELOZ, who is helping spread electrification across California. They’re a big proponent of the renewable energy. Ford also works closely with suppliers to maintain a sustainable and responsible global supply chain. It’s launched a Partnership for a Cleaner Environment (PACE) program to reduce a supplier’s environmental footprint, and train them in responsible business practices. Ford’s also a member of the Responsible Business Alliance (formerly the Electronic Industry Citizenship Coalition), a nonprofit of leading tech companies dedicated to improving social, environmental and ethical conditions in their global supply chains.
When asked what his favorite vehicle was, the legendary racer and Cobra builder Carroll Shelby answered, “the next one”. That answer runs deep at Ford, too. So what’s the next one for Ford’s EV division? Be on the lookout in 2020 for Ford’s Mustang-inspired all electric SUV, which will hit the market with a 300 mile range. The F-150 hybrid will also be launched in 2020 followed by an all-electric version within the next few years. “We’re accelerating our growth at the right time,” adds Cristina. “EV cost is coming down at the same time customer interest is growing, which is a nice convergence for the market. We think the electrification of our successful, iconic vehicles is what’s going to differentiate Ford moving forward.” I’ll be honest. I still play Headlights at Night. But I know that little kid inside me will be anxiously waiting for the day he sees the headlights of his first all-electric, Mustanginspired SUV.
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Chord Progression and the fine art of growing a business in retail energy BY AARON COOK
’M NOT MUSICALLY INCLINED. I’M TONE DEAF. I can’t carry a tune in a bucket. I don’t play an instrument – unless you consider Spotify an instrument - then I’m a virtuoso. So it should come as no surprise that during a recent conversation with my 17-year-old (he plays the snare in the high school drumline and is a self-taught pianist), I was absolutely flabbergasted to learn that thousands of songs start with just four chords. Mind. Blown. I mean, how in the world could Weezer and Tim McGraw’s music possibly have anything in common? But it’s true. I Googled it. It’s not that I don’t trust my kid. It’s just that I’m not willing to admit he knows things that I don’t. So, let me explain. Within the melody of most songs, you’ll find the same four chord progressions. These chords are the building blocks of an infinite number of our favorite tunes across time and genres. They’re the thread that runs through The Beatle’s “Let it Be” and Rascal Flatt’s “Stand”, as well as Andrea Bocelli’s “Co te partir”. What does this have to do with growing a business in the energy market? Everything really. Like the same four chord progressions of melodic DNA that flow through the bars of innumerable songs, so too are there common principles of growing a successful business – large or small, and independent of what role you play inside that business. So let’s take a journey down the “for instance” path now. Freepoint Energy Solutions, the retail energy supply subsidiary of Freepoint Commodities, was founded a little over 3 years ago to serve commercial and industrial customers and finds itself in an enviable stage of growth. Case in point - in a recent national ABC study by ERCG, and following its first full year of operations, Freepoint Energy Solutions was named the #1 Supplier in 2018 based on ABC volume growth. On top of that, it was ranked #2 for Ease of Doing Business among national brokers and consultants. So how do you do it? How do you grow a business inside a market where margins are tight and competition is stiff? Jackson Vo, the president of Freepoint Energy Solutions and Geno Cortina, the vice president of sales, each weighed in on four principles that have helped the company in its early stages of business growth. Of course, these are principles that can apply to any size business, regardless of what side of the energy deal it falls. So, what are the four chords of business success that Freepoint Energy Solutions is playing? 19
C - F - G - A | LIKE THE SIMPLE NOTES that blend into the progressive chords, the company started with the basics. Now that may sound too simple or trite to even mention. I don’t know, maybe like washing in the river Jordan to be cured of leprosy? But simplicity, apparently, can be a healing power if you give it the proper reverence. Since Freepoint was started by people who had experience in the energy space, they knew operations needed to stay simple – especially as they took their first steps. With that expectation they evaluated a number of systems until they found one that could best run the operations of the business from front to back. “Let’s take your average retail power contract,” Jackson suggests. “When you close a deal that has over a dozen pricing components, you want to make sure those components are appropriately managed. You want to make sure the hedging and scheduling are correct – that everything agreed to by the customer in the contract is what ultimately ends up on their invoice. We’ve all worked for companies that rely on a multitude of systems to handle this, and we’ve experienced the frustration of doing so. We made a very deliberate decision early on to streamline this as much as possible.” In other words, when a Freepoint team member prices a deal with a pass through capacity, they simply uncheck a box. And that unchecks the box across the company’s system. It unchecks the box on the contract and it alerts the team not to hedge capacity for that customer because it’s going to be a pass through. Some retailers, according to Geno, still run a “Frankenstein” system. One system for pricing. One system for billing. One for their portfolio management. Well, you get the idea. “We could have gone the ‘Frankenstein’ route,” Geno notes. “There are numerous portfolio management vendors who specialize in various aspects of our business that we could have utilized. And I’m sure there are pros and cons of each. But, if any-
Jackson Vo, President of Freepoint Energy Solutions
“BEING PART OF A RELATIVELY FLAT ORGANIZATION ALLOWS US TO BE NIMBLE AND ADJUST QUICKLY. IT’S THIS ABILITY THAT HELPS US PUSH IMPROVEMENTS AND MEET SPECIFIC PARTNER AND CUSTOMER NEEDS BETTER THAN LARGER SHIPS THAT TAKE TIME TO TURN.”
thing, running with one system has helped us maintain our data integrity across the company and freed up time for us to spend on growing our client base.” NUTURE |NUR-TURE /nәrCHәr/ - THE process of caring for and encouraging the growth or development of someone or something. When you divert your energy from the struggle of automation, there’s a natural, added capacity for freeing up time to focus on other stages of business growth. For the Freepoint team, that was nurturing the relationships that would grow their revenues. “Our business has been fairly simple and straightforward from the beginning,” Geno adds. “We wanted to simply build credibility and trust with brokers so they’d feel comfortable bringing their customers to us. We didn’t just want to be a mil better on the deal; because a broker could say, ‘well, you’re the new guy and we don’t know you and I’m not sure it’s worth moving my customer of three years to an unknown.’ We wanted to build trusted relationships with
brokers and consistently deliver on their expectations, which takes some good, oldfashioned nurturing.” So they focused their energy on the channel partner model, which according to Geno, is a lot easier and more economical to staff and scale. The cost to acquire customers via brokers, Geno explained, is less than hiring a large outsourced sales force. Naturally, hiring one channel manager who can support five brokers was a far better cost proposition for the new company, too. Again, that freed up time and resources to concentrate on building up a broker network, understand the needs of that network, and craft customized solutions to meet those needs. “Our ability to deliver on the fundamentals while also responding to broker specific requirements demonstrated that we were serious about embracing them as partners.” How has this nurture philosophy worked? As of today, up to 98 percent of Freepoint’s energy deals are run through their channel partners with the rest made up of customers Freepoint has some kind of institu-
tional relationship with. “We are a broker-centric retailer,” Geno points out. ADJUST | WHEN YOU START A NEW COMPANY, YOU have to be flexible. Jackson admits that not everything has gone according to the original business plan. As I mentioned before, Freepoint’s team was made up of professionals who had past success in the retail energy space. It was a natural leap, then, to try and replicate what they had done in previous lives and past stops. So the initial idea was to go to market using similar strategies the team felt could help them gain some early traction. “Once our initial deals started closing it became evident that some of our assumptions weren’t playing out as we hoped,” Jackson reflects. “It was more difficult to earn the type of customer we were initially after. At least in the ways that we wanted, and still ensure the business was profitable.” So rather than bulldoze through with their original go-to market plan, Freepoint adapted to the market. They updated their strategy to focus on where they were finding success, which was with the custom pricing of larger deals. Jackson was quick to point out that this change wasn’t a negative second choice though. While it wasn’t what they had planned
for initially, the change helped the team find success in both the custom and matrix pricing space. “Being part of a relatively flat organization allows us to be nimble and adjust quickly,” Jackson adds. “It’s this ability that helps us push improvements and meet specific partner and customer needs better than larger ships that take time to turn.” But that wasn’t the only time the team had to be flexible. The company first started selling in PJM with the first deal coming out of Pennsylvania. “That was purely strategic,” Jackson responded when asked why the company started in PJM. “We could have chosen any deregulated market to launch the company. But after looking at each ISO, we started in the market where we believed we could have the most success and build on from there.” Gaining traction in PJM, however, took longer than expected for the new company. So the team hit the pause button. It was better, before jumping into a new ISO, to refine their processes and products across PJM until it they had a sustainable, repeatable business model. “We wanted to show our brokers and partners that we had the right team in place to grow a business that made sense,” Geno adds. And it worked. After spending a little more time in PJM to refine its operations, Freepoint moved into ERCOT last summer and is currently advancing the brand across the Lone Star State. And as momentum continues to accelerate, Geno says, “we’re looking to launch in New York by the end of this year and then potentially move into New England before the end of 2020.”
MARKET-BYMARKET Freepoint’s first deal was made in Pennsylvania in 2017. By the Summer of 2018 the company had moved into ERCOT and is now planning to be in New York and New England by the end of 2020.
Geno Cortina, Vice President, Sales
“IF ANYTHING, RUNNING WITH ONE SYSTEM HAS HELPED US MAINTAIN OUR DATA INTEGRI� TY ACROSS THE COMPANY AND FREED UP TIME FOR US TO SPEND ON GROWING OUR CLIENT BASE.”
STICK-TO-IT | THERE’S AN OLD ADAGE THAT SAYS the best PR is to deliver on the promises you make. And really, that’s what Freepoint’s done. From the beginning the team set out to deliver best-in-class customer service, competitive energy prices and consistent, accurate billing. This, despite being a new company, with “new company” hurdles to jump. But they stuck to it. Freepoint evolved with the journey and has been able to build a trusted reputation among brokers and their customers across the markets they serve.
“We’re still very young and building,” Jackson points out. “But having a parent company with access to deep resources and experience in wholesale trading means we’re better positioned to meet our obligations. By leveraging that expertise, we can make sure our pricing is sharp and that we’re effectively managing risk. We see consolidation happening all the time in this market. But we’re set-up for the long run to deliver on the expectations of our partners and customers.” That was validated in January when Energy Research Consulting Group (ERCG) led by industry veteran Young Kim, published an independent ABC broker report. The report included 156 ABC firms, or 73% of all ABC volume represented, and was conducted between December 2018 and January 2019. The result? Freepoint delivered on their promises – at least that’s how the brokers see it. Freepoint was voted in as the #1 Supplier in 2018 by volume growth and ranked #2 for Ease of Doing Business. Entering the current retail energy market today is no small feat. To be successful requires a mental shift – a shift that others in the industry may not be willing to tackle. For now though, Freepoint finds itself in an interesting spot nestled between “upstart victor” and “the long road ahead”. “We are very proud of the success so far,” Jackson reflects. “But we are also very conscious of the work ahead. Fortunately, we have a solid platform and a great team of people who are up for that challenge.” So for the time being, what the final soundtrack of Freepoint’s journey will sound like is still in the recording studio. But based on what we’ve seen, it’s shaping up to be a classic hit that even the Pied Piper would be willing to play. I just hope it’s on Spotify. GO TO TABLE OF CONTENTS
ENERGY RESEARCH CONSULTING GROUP Retail Energy Brokers
ERCG’S RESEARCH GIVES AN EXCLUSIVE LOOK AT
THE HEALTH OF TODAY’S RETAIL ENERGY BROKER BY YOUNG KIM
Just over five years ago, the leadership of TEPA reached out to ERCG to survey the TEPA membership and the ABC community at large on issues that affect both ABCs and suppliers. Since that first ERCG survey in 2014, we’ve completed five editions of our flagship annual National ABC Study. Many thanks to TEPA for supporting us throughout this process. After five years of surveying, now is a good time to reflect on how the industry has changed or not. Some things you can always count on. Every year, we have asked ABCs what their most important driver of supplier satisfaction is, and the number one factor has always been good Account Managers at suppliers. Another consistent theme in the data is that supplier margins fluctuate from one year to the next (and in 2018, supplier margins are down from 2014 levels); however, ABC fees are remarkably stable over the five year period and have actually been slowly increasing over time. ABC firm size, as measured by employee count, hasn’t change much either. Even after all the M&A activity we have seen in the ABC industry, firm size statistics have remained steady. Why? Barriers to
cism by saying that suppliers are under no obligation to disclose their margins in a supply contract, either.) Under the consultant model, the customer knows the fee they are paying directly to the procurement consultant. Another driver is a heavily crowded field of ABCs. The most common complaint from customers is that they get too many sales calls for energy. As an extreme example, one ABC in our survey reported that they decided to sell their broker book of business and changed their business to focus on non-commodity solutions for larger energy users. After they land a new client, then they come back with the offer to comparison shop for electricity and gas supply. It used to the be the other way around – leading with commodity and then adding non-commodity. Now there appears to be more players in the field leading with non-commodity to get a foot in the door and then layering in the commodity deal as a value-add after trust has been firmly established. IT’S ABOUT RELATIONSHIPS, STOOPID No one is going to say that price doesn’t matter. But is price the only factor? Not by a longshot. As energy contracts and offers get more complex, ABCs and suppliers have grown to appreciate stronger partnerships. Ultimately, as we’ll see below, it’s the customers that benefit the most from good ABC-supplier representation. Indeed, customers of the best supplier-ABC partnerships may not even realize how good they have it because they are insulated from bad service and treatment.
entry for new ABCs are very low, and that helps to keep the industry from consolidating. The ABC industry is dynamic, though, and not everything is the same today compared to five years ago. Here are some key trends that we have identified in our research. LESS BROKERING, MORE CONSULTING The ABC business model has changed over the last five years, and one of the most significant differences is in how ABCs generate revenue. Brokers made up 83% of the ABC market in 2014, but in 2018 that number has gone down to 74% of revenue generated by ABCs through the broker model. More ABCs drew revenue from consulting in 2018 (19%) compared to 2014 (8%). ABCs also report doing 3% of revenue from non-commodity activities in 2018. There are many possible reasons for the shift in business model. First and foremost, customers are asking for it. The broker model is the most common because it is the most convenient, but it is the least transparent. In general, broker fees are embedded in the supply contract and brokers are not required to disclose their fees to the customer. (Of course, some brokers would counter this criti-
In an ideal world, when a customer wants an all-in fixed price deal (as most customers do), an ABC would be able to deliver both the lowest price and price certainty. In today’s market, it is now hard to deliver both. One of the most common customer pain points that ABCs have been exposed to in recent memory has been the rise of pass-throughs (aka change-in-law provisions or material adverse change clauses in customer supply agreements). In 2018, ABCs reported that on average 17% of their contracts experienced a trigger of a pass-through of some kind (capacity, transmission, etc). But not all ABC-supplier relationships are equal. When communication lines are open and there is a long history of deals, ABCs say that they can press their supplier partners to justify the application of the change-in-law provision, and in many cases adjust the amount that gets passed through to the customer. Some ABCs report that they can leverage their buying power and strength of partnership with suppliers to waive most pass-through charges to the customer. Suppliers have a vivid memory of instances when ABCs go above and beyond, and there are countless examples. A supplier tells the story of a time when a mutual client experienced some customer service issues, and the ABC offered to use their fee to help offset
ENERGY RESEARCH CONSULTING GROUP Retail Energy Brokers
the charges incurred. Another supplier praises a broker who was experienced and knowledgeable enough to choose them because of everything this supplier brought to the table (postclose deal support, strong track record, regulatory advocacy) â&#x20AC;&#x201C; even though their offer was 1% higher, they won the deal. Another supplier sums it up best when they say that their best partners keep them at the bargaining table and give them a chance to retain a mutual customer even when they are not the absolute lowest price. MURDERS AND EXECUTIONS There is nothing particularly new about supplier mergers & acquisitions. Supplier takeover of smaller suppliers has been happening in our industry for years. But there is something
Young Kim is Principal at Energy Research Consulting Group (ERCG) and has over ten years of experience in energy consulting. At ERCG, Young works closely with senior management of retailers and key stakeholders on market conditions, investment opportunities, and entry strategies in the competitive energy business. His analysis and counsel has led to several new ventures and the successful expansion of many un-regulated retail energy firms into new markets.
different happening in the latest round of M&A activity. In previous waves of M&A, when one competitor was taken out, another would spring up. There was always an infusion of new suppliers to make up for the buy-out of a few suppliers. Lately, very few new suppliers are popping up â&#x20AC;&#x201C; we appear to be entering a true consolidation phase in our industry. Most importantly, it is noticeably affecting the ABC industry. Supplier M&A is a big risk to ABC relationships because it can cause a disruption to people and systems, thereby changing the usual course of business. Some ABCs have commented that after the merger, their key contacts at the acquired company left and no one from the acquiring company stepped in to manage those accounts. Response time, they note, has also
Brokers made up 83% of the ABC market in 2014, but in 2018 that number has gone down to 74% of revenue generated by ABCs through the broker model.
declined post-merger because they lost their dedicated service rep. In other cases, ABCs lament the loss of some of their favorite suppliers due to acquisition since they are not getting the same level of service at the new organization. Lastly, some brokers have observed that customers can get the short end of the stick in a supplier acquisition because most suppliers do not have set processes to handle the transition for ABC accounts from one supplier to another. Despite the alarm bells that ABCs are ringing on the issue that consolidation is reducing options (and service quality in some cases), itâ&#x20AC;&#x2122;s not all doom and gloom. Some elite suppliers that are very dedicated to serving the ABC community have performed well in our rankings after M&A deals. In fact,
some smaller firms that have been acquired have actually improved their scores after they were acquired by elite suppliers. Furthermore, most of the suppliers that are rated highly in ERCGâ&#x20AC;&#x2122;s rankings have gone through M&A and managed to stay at the top by maintaining their relationships with ABCs through the transition. Itâ&#x20AC;&#x2122;s worth noting that there is a lot of explanatory power in the collective wisdom of energy industry professionals engaged in a shared experience. Help us keep the research timely and relevant. We are developing our questionnaire for the upcoming survey and would love the input of fellow TEPA members. If you have ideas about topics that concern you, please reach out to email@example.com. GO TO TABLE OF CONTENTS
More ABCs drew revenue from consulting in 2018 (19%) compared to 2014 (8%).
COL LABO RA TION
COMM UNI CA TION
s a communications major, my coursework was carried on the shoulders of words. As a PR professional they’ve shaped my career. Words, I’ve discovered over time, can handsomely reward anyone who takes the time to master them. How good is your revolutionary idea? Doesn’t matter if you swallow your words every time you try to sell it. Of course, like most things, words have an economy of scale. There are words that are purely binary - structured to read like programming code – and connect only to communicate information. The average U.S. electricity rate is 13 cents per kWh. Brokers must register with the Texas PUC.
BY scott black 28
And then there are the words that serve as the emotional vehicle for phatic interaction. What’s up? Got plans tonight? Can you believe how hot it is? These words are evolutionary and underpin our humanity – making us more sentient beings.
But it’s the combination of these two that optimizes our lives the most. They’re symbiotic. One doesn’t survive without the other. Because together they incite collaboration in ways that accelerate every aspect of our lives – how we pay bills, share the news, text our partner and yes, how we broker energy deals. Matthew Salera, Regional Manager for Strategic Sales at Direct Energy, manages a team of 6 people who coordinate with the broader sales teams covering Western PJM, MISO, California and ERCOT. Salera’s counterpart, Hans Rottman, handles Eastern PJM, New England ISO and New York ISO. And they’re the proof of concept that collaboration > communication. Salera kick started his career as a strategy and operations consultant at Deloitte. He then transitioned to Direct Energy where he worked in the Portfolio Group. In his current role, his objective is to build a business case for the deals that come through his office. So if a customer is looking for a unique hedging strategy, generation installation, renewable purchasing, or demand response, Salera’s team is the go-to resource to build that deal out for the customer. And as energy procurement has become increasing more complex, collaboration has become the poetry and verse of negotiating an efficient deal. “Customers today are savvier. They’re honed in on the countless combinations of options that are available to them as part of an energy deal,” Salera says. “They know there’s a smarter way to procure energy than just carpet bomb it with any and every option. Our goal is to flow the conversation so that all of the pieces of an energy deal become one optimized, efficient solution.” Salera noted that deals hovering around the 1,000 MWh range are fairly easy to predict. There’s not a lot of negotiating that has to go into validating the ROI on that level of spend. Where it gets messy is when you get into the weeds of solar installs, power purchases agreements or renewable purchases. At that level there has to be a more collaborative process
IT’S THE COMBINATION OF THESE TWO THAT OPTIMIZES OUR LIVES THE MOST. THEY’RE SYMBIOTIC. ONE DOESN’T SURVIVE WITHOUT THE OTHER. BECAUSE TOGETHER THEY INCITE COLLABORATION IN WAYS THAT ACCELERATE EVERY ASPECT OF OUR LIVES – HOW WE PAY BILLS, SHARE THE NEWS, TEXT OUR PARTNER AND YES, HOW WE BROKER ENERGY DEALS.
to help refine the offer. “Believe it or not, we’re actually having really good conversations with the more sophisticated brokers and customers who are willing to dig into the more complex deals,” Salera added. Those “good” conversations mean that both broker/customer and supplier have an open exchange of information and ideas. What’s the usage profile? What’s the risk tolerance? The notion that a supplier can provide the best rate with no context around it, no back and forth – is a myth. You might as well call down mighty Thor from Asgard to power your facility. The best deals boil down to the amount of information a broker or customer can give a supplier that aligns with the customer’s procurement goals (logos) – and more frequently today, corporate responsibility initiatives (ethos). But let’s not overstate the obvious either. Collaboration isn’t something new to this industry. It’s just that we’re getting better at it. When looked at from a purely historical perspective, the retail energy market is just a babe in diapers – compared with say, clothing retail that’s been in play since Adam and Eve ditched the fig leaves for leather apparel. And not only is retail energy new, but so are many of the players. New broker shops and suppliers are popping up all the time.
“THEY (CUSTOMERS) KNOW THERE’S A SMARTER WAY TO PROCURE ENERGY THAN JUST CARPET BOMB IT WITH ANY AND EVERY OPTION. OUR GOAL IS TO FLOW THE CONVERSATION SO THAT ALL OF THE PIECES OF AN ENERGY DEAL BECOME ONE OPTIMIZED, EFFICIENT SOLUTION.” - MATTHEW SALERA
But, Salera pointed out a couple of factors that are fueling the evolution of a more collaborative approach to energy procurement. First, there’s a variety of products and structures in the marketplace that are close to what forward-market pricing looks like. You can look at a couple options that aren’t cost prohibitive if you’re signing a normal agreement. Factors like upgrades, solar and PPAs can all get in line with the market with a short ROI, which is causing a lot of people to look at it. Second, a lot of customers are coming to the energy procurement process with very specific sustainability targets - most of which have been developed at the corporate level. Customers come to the table with clear directives like minimizing carbon emissions or reducing energy usage. At that point, the conversation steers in the direction of “how do we get them?” Salera’s team recently ran a RFP for a fixed install price for a certain term. Since the customer was based in a market with index pricing, Salera knew that if the customer broke out a couple months there’d be a high likelihood they would get to a lower rate. “That’s when we opened up a more deliberate dialogue with our channel partner,” Salera adds. “We responded with ‘hey, we know you quoted this, and here’s our response to that. But, based on usage data and the market, we think this is a better option.’ That opened the door to talk through how we could create a hedging strategy that looked different from the original ask, but produced a better return for the customer in the long run. After some back and forth,
the broker verified the strategy and validated all the data points, leading to a better contract structure than an all-in fixed rate.” Salera can’t emphasize it enough: the more information you can give a supplier, the greater the supplier’s ability to match the customer’s needs - especially if they’re going through a sustainability or renewable project. “It still happens though. We’ll talk with brokers and customers who just want a rate. But a rate’s a rate. In most cases, especially for large C&I customers, locking in a rate without context of what they’re doing on site is counter-productive. If a customer signs a long-term agreement on fixed price, then looks at a solar installation that’s going to cut their cost at the peak time and change their load shape, they’re going to lose on that fixed price over time. It’s almost a given,” Salera points out. So if you’re a broker or customer, what should you be asking? Salera suggests you first ask what’s the appetite for variable pricing? What the risk tolerance? Some large customers, like hospitals, have to know their budget within a percentage every month. Thus, a high risk aversion. In such a case, where pricing changes hourly, index pricing is not a good fit. There are however, a number of products that fit within the spectrum of fixed and index pricing. You can even blend options of the two if you want. The second suggestion Salera offered is to ask if there’s any way to impact your usage if called on? On a recent trip to Target (I live in Dallas where it’s hitting 107 now), there were signs on the doors
that had something to effect of “attention guests, we’ve lowered our lights to help offset our energy use today.” As a consumer, I didn’t care. I’m the guy who digs through my kitchen trash to find recyclable items that my kids tossed away. So I was all about a darker shopping experience in the interest of minimizing the impact on the grid. And Salera pointed out that if a customer is able to reduce their load, then it points a supplier to a product structure where it can break out different demand components and reduce your energy rate. Curtailing during certain events allows a customer to enroll in Demand Response, which is a revenue source program for flexible companies. At the end of the day, both actions lead to lower electric bills. But again. We’re a new market. Of course, we’re getting better. The collaboration is getting better. But getting customers to digest the difference between total energy spend versus just a rate is lingering. According to Salera, finding our way out of that primordial soup will be one of our biggest evolutionary wins. A win that will happen through educating the customer. “As energy technology broadens and becomes less expensive, customer options will increase, requiring more in-depth consultation on energy matters,” he suggests. “This could lead to suppliers having fewer, but closer, relationships with brokers. And I believe visa versa. The time commitment needed to educate and execute technology will drive this change.” And that tech is something that Direct Energy’s also been working on for some time. “Right now, I can get on my phone and pay my mortgage or change my house thermostat. So the question becomes how can we compete and provide information to customers in a similar framework. For Direct Energy, it’s called EnergyPortfolio. It’s an app that combines information and technology and allows customers to see their usage, project rates and get total access to market conditions. We believe this is where the market’s going.” Now, if only that app could collaborate with us...“Alexa. What’s my energy footprint been this month?” GO TO TABLE OF CONTENTS
ver a year ago, an idea was born to organize a woman-based group for the energy industry. The purpose of this group would be to inspire, empower and provide leadership opportunities for the women who are helping advance this incredible market. That idea is now a reality. In keeping with TEPA’s core values, Power Women of TEPA has been organized to focus on empowering the development of women in the industry through unique and targeted networking, leadership and educational opportunities. Power Women of TEPA represents an exciting opportunity to be a part of the change that’s happening in the industry. Backed by the full support of TEPA’s board members, the committee will be led by a volunteer board comprised of TEPA members from across the country. And while this organization is dedicated to furthering women in the market, anybody is invited to join help and help give women in the industry a national platform to make their collective voice stronger. Power Women will host its first reception during this year’s Annual TEPA Conference in Austin on Wednesday, September 28th. For more information, and to RSVP contact Shannon McGriff at Shannon@tepaUSA.
POWER WOMEN OF TEPA REPRESENTS AN EXCITING OPPORTUNITY TO BE A PART OF THE CHANGE THAT’S HAPPENING IN THE INDUSTRY. GO TO TABLE OF CONTENTS
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