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September 18, 2014 in general by

Industry Leaders Discuss Retail Energy Operations, M&A, and Compliance

On September 8, Feller Energy Law Group attended the NYC Energy Marketing Conference. Although many of the concerns and needs of retail energy providers (“REPs”) remain the same, there was a shift at this conference towards bundling innovative products with commodity service. Speakers highlighted that offering distributed generation, demand response, and energy efficiency products is not just a good idea, but essential for any REP to remain competitive. REPs that offer these products by creating strategic partnerships with energy management firms and by offering financing products, like on-bill financing will remain competitive as the market evolves. Offering innovative products is not just about having the lowest bottom line, but also about being able to cultivate deep relationships with customers through numerous touch points that are not necessarily available when a REP is only offering commodity service.

Inevitably, conversations also shifted toward what went wrong and what went right during the polar vortex. Not all REPs survived the volatile prices of this past winter and many customers were left shaken by the spiking prices, not to mention the thousands of complaints received by state public utility commissions. The REPs at the conference were congratulated for surviving this past winter and being able to thrive through this summer’s cooler than average temperatures. Notably, IDT Energy CEO Geoffrey Rochwarger received an award for IDT’s comprehensive response to the polar vortex. Further, many of the discussions on the polar vortex shifted toward how state commissions are reacting. Across multiple state commissions, we are seeing proposals to introduce new consumer protections by extensively limiting things like variable pricing plans, consolidated billing, switch times, and early termination fees. REPs were cautioned that these changes would impact their businesses. While these state level retail energy market reforms are generally in the proposal stage, many REPs remain concerned with keeping up with the changing legal environment and meeting compliance obligations.

Panels also focused on some of the practicalities of marketing and operating a REP in various stages of development. For example, Natara Feller of Feller Energy Law Group, PLLC highlighted some of the considerations REPs must keep in mind when buying or selling a REP. Just as a potential homebuyer would be scared off by a leaky roof, any indication of non-compliance could leave a prospective purchaser wondering what else is wrong with the company. Simply, a target REP needs to be in compliance with all federal, state, and RTO/ISO regulatory requirements. On more than one occasion, Ms. Feller has witnessed a hasty acquisition of a REP that was so out of date with its federal and state reporting requirements that the purchasing REP had to subsequently quickly wind it down. Ms. Feller reminded buyers, “Look under the hood. If it looks too good to be true, it probably is!” A culture of compliance and sufficient due diligence is essential for a merger or acquisition to occur.

There was also a question on the bottom line start up costs for a REP. While several commenters offered ranges of three to ten million, both Ms. Feller and Gabriel Phillips from GP Renewables & Trading, LLC noted that putting a definitive number on the start up cost for a REP is difficult because it is often market specific and determined by the capitalization requirements of a REP’s supplier. To that end, all REPs must be extremely careful about remaining in compliance with the language in their supplier deal, known as a Preferred Supplier Agreement or PSA.

There are a great deal of legal complexities for retail energy marketers to consider from supply, operations, and marketing, to customer acquisition and consummation of retail electric sales. This highlights just a few key points that came up in a very full day that was highly informative, collaborative, and diverse.