ERCG continues its ABC leadership interview series with Perry Oman, President of Muirfield Energy headquartered in Ohio. It was a timely discussion given the FirstEnergy Solutions bankruptcy announcement recently. We sat down with Perry and also discussed several other topics, including --
ERCG: You are 100% owner of Muirfield Energy, a large broker with HQ in Ohio. When did you start the company, and what circumstances led you to do so? What does entrepreneurship mean to you?
Perry Oman: To me, entrepreneurship is seeing ways things could be better and then taking the risks required to realize that potential. Entrepreneurship is about taking destiny into your own hands and seizing control. It’s having a conversation with your wife about leaving your corporate job, emptying your bank accounts, and taking on a second mortgage in order to one day create more stability and security for your family. If you can have that conversation confidently and take the plunge -- you’re an entrepreneur.
That journey began for me in 2009. I was a senior manager with Direct Energy, which was pulling out of Ohio to focus on markets where gas and power were both deregulated. They didn’t believe electricity would be deregulated in Ohio. I was having conversations and felt the opposite was true -- deregulation was coming to Ohio -- and that’s when I began preparations to start Muirfield Energy. I approached my wife, explained that we had the opportunity to build our own firm and stay in Ohio, and we took the leap. It was an opportunity to really start from scratch, re-examine the industry with fresh eyes, and set about adding value and exerting control over my destiny in a way that I couldn’t as an executive with another company.
Initially, more than anything, starting the company meant no longer worrying about the vicissitudes of Fortune 500 companies that can change their mind and uproot families at the drop of a hat. You can disagree with those moves all you want, but if you’re just an employee, you don't have much of a say. Even if your experience and expertise are telling you it’s the wrong move, it’s hard to influence a large company.
In 2009 it came down to moving and taking another job -- repeating this pattern of following the whims of a large corporation -- or planting a flag and building something new where we had control. And that’s what we did. At first it was me in a 10x10 office, but the company grew rapidly.
ERCG: How have you structured the company in terms of product offerings, talent management, target customer segments and geographies?
Perry: From the very beginning, in the first business plan, we made the decision to not become a call center or telemarketing company. It was also important that we set the company up to create jobs and serve more customers without compromising service, so the initial structure had me in the role of sales manager. That meant hiring people with backgrounds in energy, engineering, or finance and positioning them in geographies where we thought they could be successful.
Instead of having a centralized salesforce of energy consultants working from our headquarters, it was important that we had local representatives out in the communities we serve. When it was time to expand and we wanted someone to cover Toledo, for example, it wasn’t a contracted position, it was hiring an employee who lives and operates in Toledo. Our energy consultants really get to know the businesses in their area.
Some may argue that the most efficient approach would be to sit everyone in cubicles at the home office and have them do nothing but work the phones all day. But we always felt that if we could give better service, have people that are more knowledgeable about their customer’s needs and really take that old fashioned, local relationship building approach to sales, that we would be more successful and add more value.
From a geography standpoint, we started by strategically examining the metropolitan areas here in Ohio. Obviously with deregulation you’re limited to which markets you can operate in, but after Ohio we expanded into Pennsylvania, then Texas, and we’ve continued to grow from there. We’re currently expanding into the Maryland, Delaware, and Washington corridor.
We’ve focused on the commercial side and stayed away from residential because it fits our values and way of doing business. It seems that the only way to compete in the residential market is heavy telemarketing and aggressive sales tactics, and that isn’t the business I wanted to be in.
Product offerings have taken shape based on the needs of our customers. We listen to what they’re telling us and follow the mantra, “Your business is unique, and so is your energy solution.” For most customers, a fixed-price all-in product works but in some cases, we look at pass throughs and we look at both gas and power situations depending on their needs and the geography. The product mix in Texas is very different than the product mix here in Ohio and Pennsylvania due to the nature of the markets and the regulatory environment.
ERCG: It seems like there's a lot of interest and broker merger and acquisition now. What do you think is driving this trend and how does it impact your business?
Perry: There’s a lot of interest in broker M&A. I see a few things driving that trend. First, from a value-add standpoint, brokers have a real advantage over direct sales reps. A direct sales rep will always argue that they have the best pricing, the best contract, the best customer service -- but the reality is, you really don’t know that unless you’re an experienced energy purchaser who is willing to be out there shopping different suppliers and taking the time to understand what makes one deal good and another less desirable. Even within a single supplier, circumstances can vary. Brokers have an enormous leg up when it comes to navigating those situations for their customers and adding value as a consultant. What you’re seeing as a result is that about seventy percent of all energy sales are now being handled by brokers and that number is climbing.
You have to combine that trend with the fact that we’re operating in very limited markets. Deregulation hasn’t occurred everywhere. Where it has, there are only a finite number of sizeable businesses operating, and those customers are locked up pretty quickly. That makes growth a challenge, especially organic growth. It’s very difficult for someone to start from scratch and to make headway in this business right now, or for established companies to grow organically. This is another reason we’re seeing so much merger and acquisition activity; it’s a way to grow in markets that are otherwise difficult to expand in.
We get calls from national brokers at least once a month inquiring whether we’re for sale. But Muirfield Energy is an up-and-coming national broker in its own right, and continuing that trajectory is what we’re focused on. I believe we’re one of the two or three largest statewide brokers, and we’ve become a fairly large regional broker, so continuing that growth to the national level is where we’re focusing our time and energy. We’ve been able to maintain our edge and buck the trend against organic growth by focusing on talent. We hire experienced people who can give us an advantage in the territories where we operate.
ERCG: How would you characterize the ABC industry today in terms of margins, ethics, and skill level?
Perry: That’s an interesting question given that the broker, the consultant, offers tremendous value for the end-user. As I mentioned, the share of the market going to brokers is already large and is continuing to grow.
As a result, there’s of course ethics and skill levels that are all over the board. I think you’d see that in any space where there’s a lot of value that can be added and opportunity that exists; some will focus on realizing their value and potential by doing right by their customers, and others will be more opportunistic and not care about what they’re selling. For people who are purely driven by their sales numbers, knowledge takes a backseat.
My belief is that the ethics you see on display is often directly related to the commitment to skills and expertise. We’ve found that really focusing on understanding the industry and ensuring we have people who know what they’re doing has naturally led to having a team of consultants who strive to do the right thing by their customer. When you’re experienced and highly skilled at what you do, success should be about your ability to put that expertise to positive use for your customers and really making an impact, so that’s how we keep score at Muirfield Energy.
Unfortunately, in some cases, the ethics on display in the industry leave a lot to be desired. And in some cases it is disconnected from knowledge and expertise. There are people who know a lot but maintain the ethics of a rabid mongoose. We see that in the call centers a lot. It’s always amazing to me that anybody would buy electricity from some disembodied out-of-state voice based on the promise of a great price and better service.
The margins in the industry have definitely made the space more competitive. On top of that there’s a finite number of commercial and industrial customers operating in deregulated states, which can perhaps make people more desperate to get a sale. We obviously think that’s a short-sighted approach.
At Muirfield Energy, our margins aren’t seeing the same level of compression that you see at some other companies, and I think that’s because we offer a really good value and because we weren’t out there gouging people to begin with. I think you're seeing some of the less ethical brokers who were charging astronomical rates now beginning to see those rates cut and they’re now finally getting down to charging the rates we’ve been charging for years. That can lead to more aggressive, desperate sales tactics. We’ve been able to avoid this because we’ve been used to a fairly modest revenue stream from day one.
ERCG: What qualities do you look for in an ideal supplier partner?
Perry: Suppliers are interesting. You have some suppliers who believe in the broker model and that no longer deal with direct sales people or employ a sales force of their own. Those are the preferred suppliers because you can work cooperatively from a pricing and contract standpoint. I wouldn’t say work collaboratively, but certainly cooperatively. When you have feedback, they’re more likely to entertain it.
Then you have other suppliers who have a division that handles brokers but also have a direct sales force of their own. These tend to be some of the larger companies. The issue there is that one day you’re a competitor and the next day you’re a coach and you’re cooperating. Unfortunately, you can’t always trust that particular relationship because you never really know what their preferred method of account acquisition is, so there’s always a bit of caution when dealing with a supplier that also has a direct sales force. But we have good relationships with these firms and they’re important to us; they represent some of the largest and best suppliers. My understanding is that the economics of a direct sales force in this industry is very problematic so I’m unsure how long this model will continue.
Regardless, an ideal supplier to us is one who’s honest and who treats their customers well. We’ve had scenarios where we realized that suppliers weren’t honest and weren’t looking out for the best interest of their customers. Obviously that becomes problematic and leaves us trying to move people away from them and point out that their pricing may not be what it seems due to bad contract clauses or terms that aren’t even handed.
ERCG: Muirfield Energy is a founding member of the Energy Professionals of Ohio, and you had your annual conference back in November 2017. What were your takeaways from the event?
Perry: I think Ohio is still a very vibrant market. One takeaway is that there are a lot of suppliers out there. We have around 40 supply relationships and there’s probably 60 or 70 total suppliers out there that vary based on size, ethics, financial stability, you name it. With the market saturation we’re seeing suppliers going to the M&A conversation as we’ve discussed, and there are folks that were suppliers in Illinois and in Texas and New England who were no longer seeing growth there who are now flooding to Ohio hoping to see growth here. Then there are suppliers here in Ohio that are no longer seeing growth and who are looking to Illinois, Pennsylvania, Texas, and New England hoping to see growth.
In some ways it’s a massive scramble, but there’s a lot of interest in Ohio, and that interest is well founded. Ohio’s market is functioning pretty well right now. I think the interest and the number of participants in the market show how vibrant it is. It also shows the strength and dominance of the broker consultant community here and I think there’s a lot of good conversations taking place. There are a lot of regulatory issues going on right now in the state.
ERCG: Given the pressure the investor owned utilities are placing on competitive markets, what are the things in your opinion that need to happen in order to keep Ohio a vibrant choice market?
Perry: I’m a believer that utilities don’t do generation well. I think utilities are great transporters but there are other opportunities for states to deal with generation and to me that’s basically third-party generators who are actually putting up their own capital to build the facilities. I don’t think the utility should be in that business at all anymore. I think at one time that made a lot of sense, but not today. I also think the utilities have made some very bad investment and management decisions over the years and that they’re at this point trying to use the legislative process to bail them out from the consequences of those decisions over the last decade.
The concern I have is that they’re either going to try regulating, which is a possibility and which would be disastrous for the state, or they’re trying to distort the wholesale market. They’re trying to have their plants -- which are frankly uneconomical, inefficient or polluting -- given a financial windfall by the state or federal government that would allow them to continue operating where the market is really pushing those facilities to close down because newer, cleaner, more efficient facilities are being built.
Right now the utilities are not the friend of the end-user. They’re not the friend of the consumer here in Ohio, to be blunt about it. They are operating for their shareholders. They’ve made a series of bad decisions over the past 15 to 20 years and need bailing out.
My hope is that we toe the line in the state and that the utilities are told that there are opportunities now for people to get generation supplied without the monopolies you’re looking for -- that it’s time to move away from that model. We’ve already seen Duke Ohio sell all of its generation to Duke Energy and get out of that business completely, which is a good model. It’s a model that makes a lot of sense for my business but it also makes sense for the consumer. You can see that by looking at the distribution prices in Cincinnati, which have remained very flat over the last five years, compared to the distribution prices in Central Ohio and Northern Ohio, which have climbed significantly as the different business units of the utilities try to make more money off the backs of consumers in order to compensate for their losses on the generation side.
For more information, contact Young Kim, Principal at ERCG
Phone: (617) 903-0877
ERCG sat down with leaders of dozens of ABC firms to get their insights on the market and how to build a successful business