ERCG continues its ABC leadership interview series with TJ Ermoian, President of Texas Energy Aggregation. We sat down with TJ and discussed several topics, including:
- price discipline and giving last look to incumbent supplier
- their stance on upfront vs. residual commission payments
- greed, misinformation, and other threats to the ABC industry
ERCG: You started your firm Texas Energy Aggregation (TEA) in 2002, just as the competitive retail market in Texas opened up. It takes some amount of courage and vision to enter in a market with so many unknowns. We are interviewing leaders in our community. What does industry leadership mean to you?
TJ: In early 2002, I first went to work for a Houston-based broker that sold for a single REP. I had just failed at another entrepreneurial venture and found myself a full-time, single dad in need of quick income and a flexible schedule. The company offered me a sales manager position. The team that I inherited included at least one stripper and an ex-convict, and their pencil-math commission calculations errors fell in their favor 19 out of 19 times. I reasoned that even a broken clock is right twice each day, right? After most of my life working self-employed, I was pretty certain I could screw up a company just as badly without anyone else’s help and started Texas Energy Aggregation. I was initially concerned that I might never get paid, or that REPs would go around me to renew the clients I brought them, but those fears never materialized, and we have apparently beaten the odds to do quite well.
I knew that customers needed sound advice instead of a sales pitch, and most were eager to ditch the incumbent provider. I figured that deregulation of a multi-billion dollar industry might yield some opportunities superior to my years working as an artist and musician. Starting in Waco, I didn’t run into any competitors for a few years. I actually thought I invented the idea of shopping to multiple providers! Nobody offered me upfront commissions, so it took a couple of years and working two jobs before I was able to make enough income to expand and start hiring office staff and salespeople. We started slowly, but in the long-run, accepting only residual commissions proved to be key to our stability, strength, and growth.
As far as leadership, I believe it starts by dealing squarely with your employees, customers and providers. Very few understand energy and they place a great deal trust in us. We have a lot of young people in our industry who are just starting out in their careers. If they see that only the dishonest people get ahead in life, they’re going to follow that path. I hope that my team can prove ourselves trustworthy, and even if doing the right thing doesn’t win every battle, we eventually win the war and people’s respect along the way.
At this point, I’d have to say that if I didn’t own the company, I’m pretty sure I’d have been fired by now. I’ve tried to fire myself several times already, but nobody else wanted my job. I often feel compelled to often point out the elephant in the room, and there will be the same number of people choking as those that are cheering that somebody spoke up. If anyone is willing to consider that a style of leadership, I’m willing to own that. Because I often have to make quick decisions with limited information, I also make mistakes. I think that being big enough to apologize and own those mistakes in front of your team gives them permission to do the same, and promotes trust and openness among the team.
TEPA has lifted up some great leaders who have been willing to give of themselves to help out even competitors for the good of our entire industry. I have never had that kind of time to devote, and I don’t think I could do as good of a job as the leaders who have sacrificed some of their own business for all of us. I really respect that. Another aspect of leadership I have had some success in is fighting for several consumer protections that greatly affect our customers. We also have occasionally had to do battle with some bad brokers and REPs whose shortcomings threaten our entire industry, but I think most of us would do the same.
ERCG: TEA has won several accolades in recent years. To what do you credit your success and why do customers and suppliers like working with you?
TJ: You would be referring to the first TEPA award and the recent ERCG survey ranking. Special thanks goes to Michael Harris for offering a TEPA carrot when we previously only had a stick, and congrats to Satori Energy for taking this prize this year. David Wiers has done a lot for our industry. I believe that my own best ability is simply being able to identify the very best human beings anywhere, giving them the best training, opportunities, and then holding one another accountable. You can teach a person anything about the industry, but you can’t teach them to care, to be smart, or to be honest. They either have those qualities or they don’t. Being removed from Dallas and Houston markets, we also haven’t been able to rob employees from other brokers or REPs nor lure anyone to Waco, so we have had to grow our own staff.
As a company, we tend to spend a lot of time educating our customers too. Because I didn’t come from inside the industry, I didn’t have any preconceptions about what customers needed or confusing industry-speak. We listened and let the customers tell us what they wanted and where they needed help. We also try not to waste REPs’ time on deals where they aren’t competitive and we don’t squeeze them with high margins. REPs only have to deal with a couple of people in our shop instead of a hundred of uneducated salespeople. We are also told that we have a very high close ratio and few cancellations compared to other brokers. We don’t request upfront commissions, and handle 90% of the customer service issues before they ever get to the REP. Because we speak the language of both the REP and the customer, we can usually resolve issues with a minimum of stress for all parties. Most importantly, we have to offer value to both the REP and the customer, or we wouldn’t survive in this competitive industry.
ERCG: What qualities do you look for in an ideal supplier partner?
TJ: First, we don’t expect perks. REPs already pay us for the contracts we bring them. It probably helps that I’m a lousy golfer. I do enjoy the opportunity to get to know our reps on a personal level. That helps create the kind of trust and cooperation it often takes to get deals done, and to resolve an issue when an REP, customer or salesperson inevitably makes a mistake. I have ponied up and paid some ETFs myself when we were at fault. I have also asked for favors when we weren’t at fault. If you make enough deposits into your account, you can occasionally make some withdrawals. Some amount of flexibility on the part of the provider is important to us. We have seen three of our REPs go under during a contract too, and a couple that probably should have. That’s no fun for anyone and certainly makes us look more carefully at our REP partners. When a customer asks which REP is the cheapest, I usually tell them, “the one fixin’ to go out of business next.”
Our ideal REP also understands that you win some and you lose some, and at the end of the day, it’s really the customer’s call. This is a horse race. Nobody stays in the lead forever nor wins every deal. When you serve the customer, it most often comes down to price. On renewals, we try to give the current provider last look on deals, as long as the customer is happy with them. We don’t just switch customers away for the lowest price leader, and we try to build our book with every provider as long as they remain competitive. If these values and ideas are our secret sauce, I hope that others will use it make the industry better. I don’t fear competition, it makes us all better at our jobs. If anyone can serve our customers better than we can, they deserve the business. I plan on staying far ahead of anyone else’s curve.
ERCG: In the Texas market, we are starting to see C&I deals with start dates several years out into the future. Is this new to our industry? To what do you attribute this trend, and what are the possible implications for contracting so far out in advance?
TJ: We are coming out of some of the lowest rates in history, and it’s not a bad idea to extend when you can offer your customer additional savings and budget certainty. I also think that as a competitive strategy, many brokers are just trying to keep their customers out of reach of the competition. This can also be self-serving and come back to bite you. I’m thinking of brokers that have locked customers into 5 year deals while the market was falling then tried to correct with blend-extends - where the REP and broker both crammed on extra margin. We now manage a lot of those customers. The same goes for REPs. It is a way for them to expand their book of business, even at the risk of going out 6+ years from prompt month. The risk for providers is that an economic downturn can leave them on the hook for load they can’t bill or sell. Advances in efficiency could also leave providers overbooked on load, if they can’t penalize the customers on bandwidth. I am convinced that renewables and storage will change the fundamentals of the industry.
ERCG: As an aggregator, what are some of the differences you have with your ABC peers in Texas? and TCAP? Do you see aggregation as an untapped opportunity?
TJ: In Texas, you need a license to kill bugs, paint nails, pierce ears, even to sell bedding, but you don’t need a license to deal with millions of dollars of someone’s electricity. I don’t see what’s wrong with the PUC having your name and social on file to make sure you aren’t a convicted felon, and yes we have seen a few in our industry. Right now, registering as an aggregator is the only way to give a customer confidence that you are willing to be held accountable to the PUC if someone has a legitimate complaint.
In my experience, aggregation works for smaller customers, for residential, and for grouping complementary load shapes together, such as schools and churches. There are also some economies of scale for large renewable projects. For nearly everyone else, they often give up their individual needs for a one-size-fits all approach, subsidizing the smallest customers and those in zones with higher rates or congestion charges.
I’m glad you asked about TCAP. They have been spreading fear and misinformation for many years, making dire predictions about how bad deregulation has been and how much more customers are paying in deregulated areas, using outdated and skewed statistics and shopping it out as news to the press, which I can only generously describe as misleading. They then paint ABCs as “snake oil salesmen” while regularly purging their web site of their own expert predictions which never materialized. I herewith would like to challenge any of their “non-profit” lawyers to a public debate on any stage (including this page) on the veracity of the claims they have published, and why the cities and taxpayers they purportedly serve have been paying some of the highest rates.
ERCG: What do you consider as threats to the ABC industry?
TJ: Our biggest threat is still deliberately unethical, or simply untrained brokers who mislead customers, taking upfront payments at exorbitant margins; but for every broker taking unjustified margins, there is a complicit REP willing to pay it to them. It only takes a few angry constituents to rile up legislators and get laws passed with unintended consequences. I have to give credit to the TEPA Legislative committee led by Paul Smolen. He has done a good job of keeping an eye on these bills in the Texas legislature, and giving us an opportunity to respond. Marilyn Fox has also served TEPA faithfully as Treasurer since the founding of TEPA.
ERCG: After 14 years in the ABC space, would you care to make any predictions about the next 14 years?
TJ: I was recently honored to serve on a forum at the Aspen Institute, focused on energy, environment and the role of public policy. That experience has transformed my vision of our energy future, as well as my own personal responsibility to use whatever influence I have to make the world a better place for our children and grandchildren. We are actively working on reform of the regulated delivery models across the country and their motivation to integrate distributed resources. The current model encourages inefficiency and discourages innovation, and it is the bottleneck holding back the coming “enernet” (the coming energy internet). I see a path focused on “negawatts” (consumption reduction) and also integrating renewable electricity into the design of building and transportation systems. I could expend valuable server space talking about that for many pages, but I would just say to watch what our company does in the next few years. ABCs who understand that our role is to serve the customer’s needs as a communicator and facilitator will continue to have a role in the evolution of our industry.
Thank you to ERCG for offering this forum, and to the others who have contributed their ideas for our mutual benefit.