ERCG continues its ABC leadership interview series with Greg Bechert, Managing Partner of Scioto Energy. We sat down with Greg and discussed several topics, including --
ERCG: Scioto Energy is the largest ABC in Ohio -- to what do you attribute your growth and success in one of the largest markets in the US?
Well, I would say it depends on the set of data being used, but according to the PUCO’s annual report filings, we are the largest in the state.
A lot of our success has been due to the fact that we were participating in the market very early on, going back to early 2009. So many suppliers were initially focused on the FirstEnergy territories, so we decided to go where no one else was, that being AEP, Duke, and DP&L. But that took some convincing of suppliers initially on our part. In fact, Susanne [Buckley] and I often found ourselves reaching out to suppliers and reviewing our headroom analysis to demonstrate how much of an opportunity existed in Ohio.
Prior to Scioto Energy, Susanne and I both spent our entire careers on the wholesale side. That experience proved to be invaluable, as it really helped us distinguish ourselves from other ABCs that began entering into the market. We understood the electric markets, having worked in many of the deregulated states across the country. Most of the ABCs active in Ohio at that time had background in natural gas only, and understood very little about electric. That made a huge difference in building confidence with the customers, and they felt very comfortable transacting with an entity that had a very deep understanding of the fundamentals, and could guide them safely through the first transaction (and ultimately many more after).
Most large C&I brokers tend to specialize in large key accounts. What opportunity do you see in going downstream, and what do you see as your competitive advantage in serving small volume customers?
C&I makes up a large portion of available load in most deregulated states, so there is a lot of opportunity for acquisition. However, operating in what we call the “matrix” space is very challenging. The loads are small, margins are smaller, buyers are very transactional, and if you “touch” that customer more than two times, you’re probably losing money.
Typically you see one of two things happen in this space; a broker will quote a few suppliers at best (takes too much time to manually gather more quotes than that), or someone in the broker shop peruses all of the rates provided to them that morning, and then distributes to the team the ONE price to sell to everybody that day. Unfortunately, neither one is aligned with the customer's best interest.
It’s because of this misalignment that we created Bluehook Systems, our broker transaction platform for matrix-size customers. By simply entering a few data points (utility, rate class, volume, and start date) a broker can have over a dozen options from multiple suppliers in seconds. They can sign the customer up on the spot with a digitally prepared, customer specific agreement that’s clean and legible. Bluehook takes what would take a broker maybe an hour to work on down to just a few minutes. Much more profitable for the broker, and the customer can feel satisfied they made the right choice as they were able to view many options.
In essence, to optimize the transactions in this space and really make it work for all parties, the acquisition process needs to be automated. After all, we are simply data management company operating in the energy space, and it only makes sense to leverage technology to increase efficiencies and profit.
Do you see gas procurement services as a declining, stable, or growth market for Scioto? Please explain.
For Scioto, I’d say there is an opportunity for some growth for sure. The bulk of our portfolio is tied to electric agreements, so we have a large amount of clients that we could sell natural gas brokering services to.
The challenge is figuring out what exactly the value proposition is though. It’s not savings, as for most of the customers in Ohio, the utilities' rates have been extremely competitive, and most of these entities have been purchasing natural gas directly for decades, so they feel comfortable with the procurement process already. Our larger, more sophisticated customers certainly see value in developing and executing a well thought out strategy for managing the natural gas, but those conversations change as you move downstream to the smaller C&I that are simply using the commodity for space heat.
What is the most common complaint you hear from customers about the competitive retail energy industry?
Without a doubt it’s the constant barrage of solicitations from telemarketers and door-to-door sales reps utilizing high pressure tactics. We conducted a survey last year, and most business owners stated they were getting solicited 3-5 times a week!
The energy industry is not static; the market is always moving, the regulatory environment is always changing, etc. More so now than ever before the customer needs to be in tune as to what’s going on, but because of all of the continuous cold calling that’s happening, many simply ignore all energy sales, and are doing so at their own peril.
What qualities do you look for in an ideal supplier partner?
The leadership team of a supplier is certainly a key component that we look to. Susanne and I have been in this industry a long time, and there are a lot of folks we have either worked for or with on the wholesale side. That gives us a great barometer to go by in regards to how we think working with the specific supplier will be.
We also like to know how capable the supplier is in communicating deal confirmations, enrollments, drops, etc. The more that a supplier can do that consistently and electronically provide us with key information, the better it is for our shop.
Product diversity is another key factor for us. As markets mature, it’s a natural progression to see clients expand their horizons and look at alternative pricing structures that allow them to be more aligned with the corporate risk strategy. They are learning that the big bad world of derivatives really provides for a lot of different types of pricing strategies outside of just a fixed price, and we enjoy helping them learn all about them.
Speaking as a founding member of the Energy Professionals of Ohio (EPO), what inspired you to start this organization? Was there a formative event that you feel necessitated action?
It wasn’t really one single event, but rather several incidences that the founding members saw taking place around them that motivated us to form the EPO.
One of the catalysts was to ensure that we protect the interest of the broker community at the legislative level. Ohio is a very active state from a legislative standpoint, and we knew that if we didn’t have a seat at the table, we were going to end up being on the menu.
Communication is the key to a successful relationship, and we felt to further strengthen the supplier/broker relationship, it would be much more beneficial and impactful if we came to gather as one. We created a forum for us to work together to ensure Ohio’s markets are fair for all; supplier, broker, and end user.
With the regulatory pressure that Ohio's investor owned utilities are placing on the competitive electricity market, what role do you feel that EPO has in this debate?
I believe one of the key responsibilities of the EPO is education and communication; internally within the broker community as well as externally with the general public.
The regulated utilities have been utilizing lobbying tactics for a long, long time, and I think it has become just easy for the legislature and other public officials to move on information without hearing the other side of the story.
Nothing in this industry happens in a silo, and that is very, very scary. When one utility gets approval for a radical structure such as AEP’s and FE’s PPA, you can bet all of the other utilities around the country are watching and plotting how they too can implement a similar structure.
So whether the EPO members are impacted directly or not by potential changes on the regulatory front, I believe we have a responsibility to make sure we are involved so that a decision is made holistically, not in a vacuum.
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