New markets offer abundant opportunities for power and gas retailers. A hungry sales force often successfully

acquires new customers and market share but realizes significantly low profits. The retailer is left confused by the

dichotomy between new customers and lower margins and wonders how they can increase profits moving forward.

This pattern is particularly common when retailers expand their product offerings from power or gas and vice versa,

or during a move from one Independent System Operator (ISO) or state to less familiar geography. These variables

frequently introduce different contract structures, such as long-term fixed or variable price, so retailers must

contend with a new, unfamiliar profitability model.

Examples of differences across markets include the nuclear subsidy cost component known as a ZEC for power retailers

in New York or the SREC 2 costs incorporated in Massachusetts. In PJM there is a network integration transmission

service while NYISO incorporates a similar transmission owner transition charge. Even more baffling are the

Pennsylvania county taxes that are applicable to one customer class but not another.

Pennsylvania-based retailer, Park Power, faced this situation and had to account for the different market-to-market

variables multiple times since launching their energy service company (ESCO) in 2012. As Park Power transitioned from

a retail broker to an ESCO, and from zero customers to 40,000, they became accustomed to asking:

1

CASE STUDYPOWERGAS

Park Power, A Customer Pricing Model Success Story Alexandre Baldassano, Managing Director

JUNE 2019

• What is the current utility price in this new territory?

» When or how will it change?

• How do I calculate my all-in costs?

» Aside from energy, what are my different cost components?

» How do I ensure they are accurate?

» How do I capture them as they vacillate?

» Which cost components can I hedge?

• What price should I charge to my customers and for how long?

» What percent margin do I want to achieve?

» What dollar per megawatt hour ($/MwH) margin do I require?

» What is the most profitable contract start date and term?

With proper guidance and the right tools, Park Power answered these questions, and achieved profitability. The company

leveraged Genscape’s Customer Pricing Model (CPM) to ensure they priced right in their market, allowing them to defend

their profit margins every step of the way. Genscape’s energy management team became an extension of their team. Our

industry experts guided Park Power to secure the latest, most accurate estimate of the cost to serve to their customers.

How can you rely on Genscape’s CPM to satisfy these questions and maximize your profitability?

Park Power launched their power business by offering variable-priced residential products in Pennsylvania’s PECO utility.

After quickly acquiring 5,000 customers, sales momentum slowed and Park Power found the remaining market desired

multi-year, fixed-price contracts. Confident in their ability to get new customers, Park Power’s sales team persuaded

management to grow into New Jersey and further West into Ohio and Illinois. The sales team also saw potential in selling

two commodities in tandem, so they guided growth into natural gas. Park Power’s c-suite was open to growth, but nervous

about profitability. After all, their PECO power customers were both loyal and profitable at $30/MwH. How could they be

confident in achieving similar success with these new product offerings?

Our Energy Management commodity team used the CPM and worked with Park Power’s Chief Operating Officer to demystify

the opportunity in front of them. With the CPM, they quickly and confidently determined where to focus growth efforts.

Park Power, A Customer Pricing Model Success Story

2CASE STUDY JUNE 2019

CASE STUDY

After the CPM identified Park Power could offer a $30/MwH margin, 16-month power contract in New Jersey’s JCPL utility

at an attractive price, the sales team knew where to focus their strategy. After quickly acquiring their first 1,000 customers,

Park Power used the CPM to understand that over 40 percent of their cost exposure could and should be hedged by buying

16-months worth of shaped JCPL load zone power and the appropriate, yet costly, New Jersey compliance Renewable

Energy Credits (RECs). Park Power leaned on our Energy Management team to structure, originate, and execute the

appropriate hedges to solidify Park Power’s desired margin on their brand-new product.

Figure 1: Even with non-energy costs like Network Integration Services rate (NITS), taxes, and RECs comprising of more than 30$ of the JCPL cost structure, multiple high profit and attractive structures can be offered to a customer prospect

Figure 2: By mirroring LDC tariff requirements, incorporating optimization of assigned assets, and providing inclusivity of all pertinent non-energy costs, the CPM provides retailers with lowest cost options to attract high margin business

3CASE STUDY JUNE 2019

Genscape’s Customer Pricing ModelRequest a demo to enhance your retail business, price right, and efficiently develop your products

REQUEST A DEMO »

© Copyright 2019, Genscape Incorporated. All rights reserved.

Similarly, Park Power relied on the natural gas CPM to educate themselves about the cost differences between power

and gas. The CPM backed by Genscape’s gas experts helped grow the company’s understanding of the importance of

storage and transport costs as well as the need to incorporate city-gate pricing versus the NYMEX pricing they were

familiar with. The CPM provided the essential platform where the multitude of changing cost components like LDC

tariff rules, individual pipeline commodity charges, on-system fuel retention rates, Purchase of Receivables (POR) rates,

and local taxes would be both warehoused and reflected in the output. As a result, Park Power confidently offered a

competitive 12-month fixed price gas product, which would net a $1.10/decatherm profit. They commenced marketing

this product in winter 2019 and soon acquired nearly 1,000 new customers by May 2019 for a July 2019 flow start date.

If you are an energy retailer looking for high-margin expansion opportunities, guided by a thoughtful risk

management approach, the CPM will become a cornerstone of your success. Like our friends at Park Power, you too

can now be 100 percent confident in your ability to enter new markets, sell new products, manage complicated costs,

and guarantee profits.

Genscape’s Energy Management Services includes an in-house team dedicated to guiding you through the complexities of wholesale and

retail electricity, renewables, and natural gas markets. We give you the flexibility to focus on your core business while we manage your load or

generation and represent your best interest in the market. By subscribing to our upstream and downstream services, industry players never lose

sight of their market position because they can see exactly what is happening with their business from anywhere and at any time.

For more information or for a free consultation, please visit: genscape.com/contact

4

Genscape’s Energy Management SolutionsReceive increased energy market transparency to fuel your growth strategy

LEARN MORE »

Request a Demo to Enhance Your Retail Business, Price Right, and Efficiently Develop Your Products:

genscape.com/products/power-natural-gas-market-forecasting/customer-pricing-model LEARN MORE »