Retail Power’s Sidekick — Retail Gas

By Gabe Phillips

Remember the SAT analogies? 

 

  1. Batman is to Retail Power as Robin is to _____  
  1. Mario is to Retail Power as Luigi is to _____

Answer: Retail Gas

What do Robin and Luigi have in common with retail gas?  They are both supporting actors in the shadows of their leading counterparts. Retail energy providers —newcomers and incumbents alike — tend to put more emphasis on their retail power businesses versus their retail gas businesses. The main reasons cited by our clients when we have asked why retail gas tends to play second fiddle to retail power are: lower revenue per customer, a single peak season, and lack of scalability in the physical operations.

The reality is, there are many more deregulated gas territories in the U.S. than power and if timed right (enrollments before the winter, not during or after), leading with a gas offering could actually lead to a more lucrative dual-commodity customer overall. 

Further, customer lifetime value of a dual commodity customer is usually twice that of a single commodity customer, even though the incremental revenue from adding the gas business is usually half that of the power revenue. 

Lastly, although the physical operations of a retail natural gas business involve a considerable amount of nuances compared to power, the level of control that one can have on risk management is actually much higher in retail gas than retail power. This is due to the assets that each retailer has access to when serving retail gas customers such as transportation and storage. Imagine if you could store a cheaper KWhr now in May to serve your power customers in July, wouldn’t your view of summer power price risk be significantly different? In a retail gas market with storage, you can. When analyzing this for our clients at this additional risk mitigating capability in retail gas significantly shifts the risk adjusted returns in retail energy from power to gas, but you still need a partner to demystify these concepts and price them right.

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Gabe Phillips is CEO of GP Energy Management, a wholly own subsidiary of Genscape