ERCG continued its ABC leadership interview series with Andrew Barth, TEPA President and Partner at CSD Energy Advisors. Young Kim sat down with Andrew and discussed several topics, including:
- The importance of people and relationships, and the role of technology in that context
- In ABC M&A, the challenge of valuing a contracted book of business
- Takeaways from the TEPA annual conference and promotion of the new Energy Management Professional certification program
[note that this is the transcript of a recorded conversation – many thanks to Aaron Cook of Timepiece for help with the interview]
Young Kim: Andrew, you’re the head of the largest ABC organization in the U.S. market, The Energy Professionals Association. You just hosted the annual TEPA Conference. What was the turnout and what were your impressions from the week?
Andrew Barth: The turnout was outstanding and continues to increase each year. It’s important to see that kind of growth. It reflects not only a growing interest in TEPA, but also that the professionals in our industry are interested in creating a more robust retail energy market. And they’re looking to TEPA to be a part of the collective voice that leads to change.
But, what’s really inspiring about our conference, is that it’s not just an increase in attendance. Our content, speakers, presenters and exhibitors are becoming the new standard in our industry. This year we examined a few different topics than what we’ve done in the past. We had a great panel that discussed cybersecurity in our industry with some of the top experts in their field, including the FBI. We also hosted Donna Nelson, former Chair of the Texas PUC.
Each speaker and topic was relevant not only from a company perspective, but also to our individual careers. Creating a robust agenda is important when it comes to who we attract, not just to our annual conference, but also to the Association.
YK: It was highly topical, with the cybersecurity panel that you mentioned and some of the innovations on deal-making with regards to solar. It was an exciting day.
AB: It’s certainly important to discuss “big picture” topics, as well as provide solutions that help us navigate the day-to-day business components that we all face in our careers. For example, I think the discussions you engaged in with your ABC panel were relevant for all of us, regardless of whether you work on the broker or retailer side.
The solar panel was also a great way to wrap up our conference. It was a lot of fun, engaging and represented the first time a customer sat on one of our conference panels. Art Justice’s perspective [V.P. of Energy and Sustainability at Cinemark] was completely relevant to today’s market and offered an insightful look at what we can anticipate in renewables moving forward.
YK: You announced that there’s a new broker certification program that TEPA is rolling out. Can you tell us a little more about it?
AB: Creating a professional certification program in our industry is something that has been in the works for quite some time, and really started long before my term as President. Education is one of the pillars of TEPA and this is an important step to complete in validating what we are trying to do as an organization.
The education component of TEPA is something that I, and every TEPA president and board member is passionate about. Most recently, former TEPA presidents Michael Harris and David Roylance, along with our Education Chairs, Michael Lewis and Ray Perry, have made great strides in setting up this program.
Until now, our certification was called the Certified Energy Professional, or CEP. However, we’re updating the initial test, as well as the scope of the program to include Continuing Education (CE) units. Our new program will be called the Energy Management Professional, or EMP. We feel the title is more inclusive of all our members, as well as reflects the broader offerings that are now available through our members.
The new test was developed, in part, to show that our EMP members have a baseline of knowledge to work effectively in this industry. But the test is only the initial step. We feel it’s important to keep the education current with CEs. Much like CEs in other fields, our members will be able to keep their Energy Management Professional Certification current by attending our bi-monthly meetings and conferences, as well as participating in other industry-related conferences, webinars, etc.
We had a testing center available during the conference and it was encouraging to see our members invest in the industry and their careers. The interest is a sure indicator that the EMP is a certification our members will be proud of and their customers will respect. We’re looking forward to having most, if not all, of our members certified. Any of our members (the EMP is not available to non-TEPA members) should contact firstname.lastname@example.org if they’re interested in starting the program.
YK: Can you speak to why you feel it’s important to have standards in terms of TEPA members’ performance? Do you feel it drives partner and supplier satisfaction with TEPA brokers?
AB: Absolutely! In fact, I believe in the next several years we’ll see more customers asking their brokers, “Are you TEPA EMP certified?”
There’s significant value to TEPA being made up of REP and ABCs, as well as our associates and affiliate members. The ultimate goal would be to have customers prefer to do business with TEPA’s members, especially those who are EMP certified.
YK: So from your vantage point as the President of TEPA, it seems to me that you feel some responsibility to manage expectations in the ABC community. Perhaps there’s a realization that you’re not going to please everyone all the time. In light of that, a few months ago you made some headlines when you publicly addressed a supplier over their comments that brokers, in their opinion, can add cost to the electricity price. Why did you think it was important to step in on this issue as President of TEPA and what has been the reaction from both the broker and supplier communities to your comments?
AB: The comments made by the supplier raised a lot of concern in our community. As the acting TEPA president I felt it was my place to write a letter to our members. In it I explained my thoughts on the topics, specifically as they related to what was reported in the news articles.
I think I have a duty as the President of TEPA to represent all the organizations to the best of my ability. So when I look at all the organizations that are member companies, I look at them all as participants in the ABC channel. Whether they are the ABC themselves, or the supplier that is working with those channels; or even a technology company who is working to develop a program for a customer. At some point, in all those transactions, the ABC community is involved.
What I believe was unfair in the articles, was the over-generalization that the ABC community was actually running prices up by adding a fee to that price. Arguably, if the ABCs are doing their jobs, they are creating competitive events around those bids. It’s difficult for me to have a 1:1 relationship with the ABC and the price because with most companies that I have experience with, they actually bring the price down. There’s a lot to be said about the competitive events that occur once the ABC component gets involved. Ultimately, I feel it is an incorrect generalization to say that the ABC is increasing the price.
YK: It seems that today’s marketplace is seeing a lot of broker companies seeking growth by merger and acquisition. In your opinion, why is that happening and is that supported by the ABC business model?
AB: I’ve been involved on both sides of these mergers and acquisitions, as well as seen them happen as a third party. I think M&A is a natural process in business for any industry.
I think one reason for the spurt of acquisitions in the energy sector, is that prices have been soft for some time now. Naturally, companies are looking at their revenue shares and their bottom line. They’re faced with two growth options, in most cases. First, they can grow their business organically. Usually that means investing in a robust marketing program. If a business can’t commit to the time and resources to organic growth, that leads to a natural hunt for possible M&A opportunities.
I think it’s difficult for the market to value the “book” of an ABC. We’re one of the few industries with contracts that have future value, but for work that has not yet been completed (i.e. the contract has not been fulfilled by the customer until the term expires). The contracts have value, but only under the assumption that the customer uses the contracted volumes of electricity.
With that being said, it can be difficult for an ABC to convey their value to a bank or a potential acquisition partner, when contracts have yet to be fulfilled. Additionally, this is a business where the greatest asset is the people and relationships that have been cultivated. Now, I hear this repeated, rather tongue-in-cheek, but ABCs that are selling want a multiple, while those who are buying want to buy at a discount. There are some people in the industry that have managed to figure this process out, and I would guess that they will continue to be successful in this endeavor.
YK: In the past, the bid-ask spread has been a bit wider so we haven’t seen too many buyers out there. It seems to be converging more as of late. Do you think there are more willing sellers popping up?
AB: I think it’s the natural progression. You begin with the supplier community and it naturally progresses to the brokers. I do think we will see additional sellers in the marketplace, especially as previous acquisitions are able to provide a blueprint for execution, and a baseline for determining value.
YK: Do you see the rise in M&As more as a swinging pendulum or a sign of things to come? And if you see it as a sign of things to come, what role do you see technology playing in helping to make it easier for brokers?
AB: I think it will be more of the pendulum effect. As I mentioned above, I think we will see a swing toward a more robust M&A market in the ABC community. However, that M&A could potentially lead to the eventual natural disbandment of organizations. We may see a firm that used to be 50 people become firms of five or ten. Then the pendulum may swing back the other way and see those firms reconnect down the road in an effort to scale growth and fill in the gaps where one organization may have efficiencies.
As for technology, generally speaking, I feel that our industry is lagging behind most industries when it comes to customer acquisition. To my knowledge, outside of residential contracts, not many have figured out how to scale this business via technology, largely because it’s still a very personal business. It is still customer to consultant or customer to REP; one-on-one business. The customers really don’t have to seek out the ABC or the supplier because the ABC and Supplier are still taking their message to the consumer. It doesn’t matter if it is small commercial or large C&I, it continues to show that human interaction is critical. I do believe that there are some firms on the forefront of combining the personal side of the business with technology, and it will be exciting to see how they progress.
What we have seen technology do is enhance the environment and create new ways to generate RFPs, along with develop new products. In this respect, technology really has advanced the business. When I first started in this business in 2004, it could take up to five days to process and price an RFP. That same pricing request today takes an hour. Technology has fast tracked a lot of the business transaction process. And we’ll continue to see it advance the industry from the perspective of the online capabilities, like consolidating back offices or accounting processes.
YK: So you have said a couple of times that it is a people-focused business, and I think most people would agree with that. If the personal relationships are most important, how does that affect the abilities of the technology companies to step in as middle men between supplier and broker? I think one of the long term visions of the technology companies would be to add efficiency and scale to the process and essentially make those relationships less important. Do you see this as a threat in the long term for the business?
AB: Tech will continue to drive the price down, which will be better for the customer in the long-term. The companies that can adapt will be the ones that are able to stick around and benefit from that market structure.
I feel like the technology aspect really works with the ABC and the supplier rather than between the customer and the supplier. There’s is a nice mix right now between the customer and the ABC having that personal touch with someone who can walk them through a contract, product or price.
The ABC and Supplier can then use technology to turn that price around quickly. If I talk to a customer today, I can give them a price before that price moves this afternoon. It allows you to have a conversation that’s in the present. You don’t have to speak in generalities and warn them that before you can get them a price, it may all change.
Today you can have a conversation with a customer and say here is today’s natural gas price, here’s how it relates to the power market and here’s how they are correlated. I will be able to come back to you this afternoon with a number and you will see why this is important and you will see that the conversation we are having this morning is completely relevant to that price you get this afternoon. I feel that’s where technology has really improved the business.
YK: Since we are talking about price and fees, what’s your sense of the equilibrium in the supplier/broker market today on that fee. Is the fee level at the right place? Too low or too high?
AB: I think the market dictates those fees and maintaining an open and competitive market will continue to keep those fees at market level.
YK: Andrew, let’s end with this question – what qualities do you look for in an ideal supplier partner?
AB: I think it’s important to ask yourself how your interactions have been with them. Have they upheld their end of the bargain? Have they honored the price they said they would? Have they stuck to the contractual terms that they said they would? If something does go wrong, have we been able to remedy that situation in a timely fashion?
Also, what is my personal relationship with the supplier? Am I able to work well with them? Think about the tripod: the customer, the supplier and the ABC. If those three can stand and work well together, then that’s a mutually beneficial relationship for all parties. That’s truly when you have the convergence of price, convenience, and relationship. They all work together so the customer feels good about the relationship.
Of course, price and product will always be important along with contract terms and balance sheets. But if you have a customer who is completely comfortable, that’s what makes a long-term good business relationship. I should note here, that this in no way limits the ability of new suppliers to come in and make an impact as well.
YK: Thanks, and congratulations again on a very successful TEPA conference.
AB: Thank you for your participation and moderating the panel for us at the conference. I think that the one thing we ask for from our members and even nonmembers is feedback. What can we do to continue to better the organization with all its members?
YK: It seems like gathering at least once a year is one of the most important things we can do.
AB: It seems to go a long way and we’re going to continue to make that happen. It’s encouraging to see the growth and to have our Northeast Board be so instrumental in expanding the TEPA brand outside of Texas. It is my hope and goal to continue to expand the footprint and the voice of TEPA. With that being said, I would like to close by saying thank you to all of the Board and Committee members, and the TEPA members themselves for their continued support and commitment to the organization.