“If you know the enemy and know yourself, you need not fear the result of a hundred battles. If you know yourself but not the enemy, for every victory gained you will also suffer a defeat. If you know neither the enemy nor yourself, you will succumb in every battle.”
‘ Sun Tzu, The Art of War, Special Edition
Here is a success checklist for a fuel marketer:
-Add propane to my company’s portfolio of available fuels: Done.
-Add bio-heat and bio-diesel: Done.
-Offer comprehensive weatherization services: Done.
-Install and service building monitoring services: Done.
-Integrate back office with mobile Web portal for customer SmartPhones: Done.
-Expand into the sale of electricity and natural gas: Working on it.
Unless you’ve been hiding under a rock, you know that deregulation of traditional electricity and natural gas markets has been around for a couple of decades. Chances are, you’ve attended a presentation or two on the subject, yet selling electricity and natural gas remains a foreign notion to most heating and motor fuel marketers. We are talking about selling natural gas and/or electricity using the utility’s pipes and wires. Hauling Compressed Natural Gas (CNG) and Liquefied Natural Gas (LNG) are for another discussion.
Depending on where you are located, the degree to which your neighborhood is deregulated ranges from virtually non-existent to well-developed. On a state-by-state basis, the barriers to entry run the gamut, from ‘hunker down with napalm, a battalion of lawyers, and roll the dice” to ‘fill out this simple form and you are good to go.” As an example, in the case of one larger Northeast utility, there is no bonding or posting of cash requirement if the marketer (you) is on solid ground.
In spite of all the jargon, it’s not as complicated as one might think, yet it’s not the heating oil or propane business, for sure. You can manage the entire process or outsource various portions of it. Here are a few things to keep think about:
You’ll join anywhere from dozens to hundreds of other companies registered in the states you are operating in. Forty five percent of the gas load in New York under National Grid’s system was sold via third parties as of late 2011.
Once you are up and running, you may have the option, depending on where you operate, of a purchase and receivables option, whereby the utility buys the accounts receivable from you ‘ at a discount – once the ‘sale” has been made. This essentially takes the accounts receivable risk from the marketer.
Someone will have to manage ‘monthly balancing,” whereby the utility assesses a fee to the marketer if the customer’s load is off by, say, 5 percent or more. On really large users, meters can be read three times per day, electronically, which allows the marketer to keep tabs on projected use vs. actual use. The degree to which this number deviates from the planned use translates into a charge to the marketer, which is ‘cashed out” daily (typical) and billed to the marketer once per month (again, typical). Some marketers are better than others at load balancing, so marketers can have the utility manage the balancing, for a fee, as an option.
If and when you take on a new customer, the utility will require advance notice of the entrance of a new customer into the marketer’s portfolio.
You may encounter an Electronic Data Interface (EDI) deposit, a non-refundable amount ($5,000 in the case of one Northeast utility) that covers the cost of the utility’s expense to construct an interface for the individual marketer. The EDI allows companies like yours the option to get metering data from the utility via the Web or some other portal, 24 hours a day.
Yes, there’s virtual storage, peaking, true-ups, pool operators, sourcing, imbalance charges, swing demand charges (a.k.a balancing assets charges), consolidated billing charges, storage gas transfer rates and more. The point is, other than fear, there is little stopping you from selling electricity and/or natural gas. There’s some paperwork, yet no tank wagons, bobtails or bulk plants to buy. From the standpoint of regulatory construct, it really does not matter where you are located.
It’s human nature to go with the familiar, so the natural choice for most fuel companies is to sell electricity and natural gas within their existing market footprint, yet you are not limited to your utility’s market area. A friend of mine sells industrial and commercial natural gas and electricity in a number of states far away from his base of operation in New Mexico.
Depending on the geographic location, you can also sell electricity and ‘ or natural gas – to some or all classes of customers. Whether you wish to sell to commercial or industrial customers, or prefer the familiarity of residential customers, you will have to research the current regulatory environment in your state or utility market. As a fuel marketer with long-established relationships and customer trust, it is not a stretch to sign up your existing customers with these new products.
From a process standpoint, yes, some states make the process easier than others, and yes, at first glance, it’s a bit intimidating for the uninitiated. However, it’s not quite the rocket science that some would have you believe, and there are plenty of people out there that can help you.