Who Are the Best Retail Energy Suppliers?

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Alicia Ford
8 years ago
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2 We are often asked by our clients to help them find reasonably-priced electricity and natural gas supply. Even if we help them lower their energy usage with solar, LEDs and other technologies, these strategies never reduce consumption by 100%. Our clients continue to rely on supply from their local utility or a third party supplier. Besides the utility which is always a reasonable supply alternative who are the best retail energy suppliers? What do we look for in an independent marketer? How do we know whether the energy suppliers who want to supply our clients are reliable? And how do we know whether retail energy suppliers are offering the best prices for electricity and natural gas? One of the functions of a retail energy broker like Solomon Energy is to go out to the energy marketplace and assemble competitive quotes for our clients. In evaluating the bids that come in, price is NOT the only important factor. Over the past 18 years of electricity and natural gas deregulation, dozens of competitive marketers and suppliers have closed their doors, some through bankruptcy, others because state regulators have revoked their licenses, still others through consolidation, merger, or simply liquidation. Accordingly, all retail energy suppliers are not the same. In this article we first discuss the factors that we use to evaluate who to recommend to our clients. Then we name the retail energy suppliers that we believe are the most experienced, reliable and honest. Criteria for Identifying Good Retail Energy Suppliers Before we ask for price quotations we look for a number of factors in a retail energy supplier: 1. Credit. Believe it or not the most important factor in a supplier is the one that is rarely discussed: credit-worthiness. The most frequent cause of supplier collapse is a weak balance sheet. Suppliers that offer fixed price supply contracts for up to three years must buy long term hedges from the marketplace. Only companies with strong balance sheet can secure such hedges. That is because the financial institutions that offer the hedges will only deal with strong credits; after all, if a supplier buys long term supply from a banking counterparty (in order to hedge against the fixed price supply risk to our 1

3 client) and prices go down the banker would lose money if the supplier walked away from the contract. Accordingly, the banker will want to know that the supplier has enough money to meet its obligations, even in volatile electricity and natural gas markets. There are risks even with floating rate or variable rate supply. In that case a supplier can be put under sudden financial pressure if market prices suddenly spike and they must pay more for electricity or gas than they can afford in order to meet their client obligations. In either case, if a supplier defaults on a contract with one of their customers it could result in unnecessary hardship if the consumer must suddenly go out into the market to buy supply at much higher prices. 2. Experience. Suppliers should have experience with supplying electricity and natural gas to our clients in their specific utility territories. Some suppliers are strong in some parts of the country but not in others. In extreme weather events we want to be confident that a supplier can meet our clients needs and get energy to their facilities. 3. Integrity. Some suppliers have a reputation for promising to undercut utility prices with a variable rate supply contract. They will often save clients money in the first month or two of a new contract. But later they may start to raise their prices in a classic bait and switch. Many suppliers have a history of taking advantage of customers who fall asleep, i.e., they take their supply for granted and don t scrutinize their bills to make sure the supplier is setting reasonable prices. See How Do Energy Marketers Set Their Prices. 4. Responsiveness. We have dealt with some energy marketers who take a week or two to respond to a request for prices. Then, if the customer shows interest, they take their time to refresh prices and may even try to squeeze additional markup out of their supply agreement. We prefer retail energy suppliers who have a pricing desk that will reply quickly to a price request and then will freshen it up when we are ready to do business. 2

4 5. Market Research We like to deal with retail energy suppliers that will supplement their pricing services with information about the markets. Not only does this information demonstrate that a supplier has experience and insight into markets that are important to our clients. It also helps alert us to issues that might affect our thinking about the optimal timing of our clients supply decisions. The best suppliers put our periodic newsletters, similar to the Solomon Energy weekly and monthly newsletter (Watts Up). Even if our clients have no time to read these publications we scan them daily, watching for material market intelligence that we can pass on to our clients. So Who Are The Best Marketers We deal with close to a dozen different retail energy suppliers in different parts of the country. Some are strong local or regional players. Others have a national presence. At the risk of omitting some capable marketers (and offending them to boot!), we will list the foremost retail energy suppliers that we have dealt with over the years. 1. Constellation Energy. Constellation Energy and its affiliate, Constellation New Energy, provide a range of retail energy supply services to large industrial and commercial as well as residential and business consumers throughout the country. The company is part of Exelon, the largest utility in the United States, and has grown over the years through the acquisition of a number of strong retail energy companies like MXenergy, Integrys, AES NewEnergy and Startex Power. In addition to having a strong pricing desk and experience in all major NERC regions and on all major pipelines, Constellation is also familiar with energy efficiency technologies that can help reduce energy usage. 2. Direct Energy. Direct Energy is the North American retail energy subsidiary of Centrica, a large UK-based company that was once known as British Gas. Like Constellation Direct Energy has also grown through acquisitions of other companies and has added numerous other retail energy services including HVAC services. It has a large commercial energy division as well as a residential division and does business throughout the country. Direct Energy uses a number of direct marketing techniques such as door-to-door which will sometimes be sited for aggressive sales tactics including slamming. (See, e.g., involving a recent claim in Michigan.) 3

5 Early in its history Direct Energy was often criticized for such behavior in the Ontario market but we believe that recent management has made bona fide efforts to clean up its sales efforts and treat customers respectfully. 3. Crius; Viridian; Public Power. These companies are all part of the Crius Group whose customers are located in the United States although the company is publicly listed on the Toronto Stock Exchange. The Crius group has grown rapidly in recent years both organically and through acquisitions and has expanded its services beyond its roots in residential marketing to commercial customers throughout the country. We particularly like the fact that its Public Power arm puts out daily pricing to customers, helping them (and brokers like Solomon Energy) keep track of energy market changes. 4. Spark Energy. Spark is a Texas-based company that has grown rapidly in recent years, going public in 2014 and providing strong services to both large commercial as well as small business and residential markets. We have found that Spark has distinguished itself with its rapid response pricing desk which frequently turns customer requests for pricing around within hours. We know how much business Spark does so we know it is not because of a dearth of such requests; rather, the company has made a serious investment in supporting its retail energy supply operations. In addition to these national marketers we have admired the strengths of several other retail energy suppliers in specific regions. IGS Services, for example, has particular strength in Midwest from its Dublin, Ohio headquarters. Sprague Energy has particular strengths in New England natural gas and electricity markets. Champion Energy has focused on its mid-market commercial clients throughout the Midwest and Northeast. Hudson Energy, a subsidiary of Just Energy, a listed Canadian company with a long history of regulatory problems, has provided strong service to commercial customers in New York, New Jersey and Texas. It s All About the People Ultimately, energy suppliers are only as strong as the people who work there. Over time we and our clients develop relationships with individuals on the pricing desk, in operations, and in sales. They are the ones that ultimately develop our confidence and earn our trust. We thank them in advance for their help! 4

How Do Energy Suppliers Make Money? Copyright 2015. Solomon Energy. All Rights Reserved.

How Do Energy Suppliers Make Money? Copyright 2015. Solomon Energy. All Rights Reserved. Bills for electricity and natural gas can be a very high proportion of a company and household budget. Accordingly, the way in which commodity prices are set is of material importance to most consumers.