Last month I published an article which attempted to illustrate the deregulated Texas electricity market. The point was to connect many of the REPs with their parent companies to give consumers a clearer picture of who all the players were in the Texas market.
Building off of that post, I’d like to take a closer look at Pennywise Power. My main reason for this is similar to my post last month, which is to give customers a greater understanding of some of the ownership affiliations for these REPs. With so many REPs being purchased by other companies, I think it’s important that customers who have negative experiences with one company don’t inadvertently sign up with service from another REP who might have the same parent company. By the same token, a customer who might find a better rate from a partner company where they’ve had a positive experience might feel more comfortable switching.
Which brings us to the focus of this article, Pennywise Power. Why am I singling out them out, as opposed to other companies that have multiple REP’s operating in the market? Well, I do think there’s a difference.
Why is Pennywise Power Different?
First, lets take a quick look at their website. It’s a very straightforward and functional website. It’s not cluttered or confusing, and there are really only a few pages to view, a homepage, a page to view available plans, a customer support page with some phone numbers, and an About Us page. The About Us Page doesn’t give much information about the company, it just reinforces their message on the homepage, which is that Pennywise’s purpose is to be a low cost provider with the mission of getting customers the lowest prices. Their no frills website supports this message. Nowhere is there any mention of Pennywise having any kind of corporate affiliation, which is typical if an REP has a parent company, like what you see on Reliant Energy’s website, among others.
But again, I reiterate, what makes Pennywise Power different? Well, for starters, their parent company IS Reliant Energy, who is in turn owned by NRG. I find it strange than an REP with such large parent companies would make no mention of their corporate affiliations anywhere on their website, particularly since the ownership chain includes one of the largest retail electricity providers and one of the largest energy generation companies operating in the United States. With that lineage, why would Pennywise Power’s website make no mention of their ownership and instead present themselves as just a small operation trying to appeal to cost-conscious shoppers?
Considering that Reliant is one of the two incumbent electricity providers operating in Texas and by that token one of the two largest REPs operating in Texas, I figure this garners a bit more attention. Particularly since they’ve been a lightning rod for controversy recently and they’re one of the worst reviewed providers on my website.
Breaking Down the Reliant/Pennywise Connection
Big companies operating multiple REPs isn’t a new thing. Fulcum Power previously owned Amigo and Tara Energy. They purchased Tara after buying Amigo because Tara is a niche REP that marketed to a specific demographic, much like Amigo itself. Under those circumstances, it makes perfect sense to keep operating the Tara brand, since it has specific market recognition. That’s probably half the reason Fulcrum purchased them in the first place. Ditto the recent purchase of StarTex Power by Constellation Energy. Or when Florida Power & Light purchased Gexa years back. Same principle.
The chief difference I see with Pennywise Power is that they weren’t an entity with a brand that was purchased by Reliant. They were created entirely out of thin air by Reliant Energy. They weren’t a company with brand recognition or an existing book of customers that was acquired at a good price. They were started from scratch by Reliant Energy employees in 2008. Their PUC license was initially granted to a company called Reliant Energy Services Texas, LLC. This is separate from the original PUC license that was granted for Reliant Energy, which was filed in 2001 under the company name of Reliant Energy Retail Services, LLC. Pretty similar names right? In 2010, the company formally filed to change the name of the the company tied to their PUC Certificate from Reliant Energy Services Texas, LLC to Pennywise Power, LLC. I guess they thought maybe they didn’t want to have their new and fresh brand attached to a parent company named Reliant. Here are links to the respective PUC Licenses, which include a record of their changes over the years: Pennywise Power; Original Reliant Energy.
Also, for the record, if Reliant was looking to separate Pennywise from their parent brand, they might have also considered modifying the information under both Mailing Addresses so all of the company officers weren’t the same people with the same positions and same contact information.
So Why Bother?
So the question is, why would Reliant Energy do this? Particularly since as one of the incumbent providers in Texas, Reliant Energy is already positioned with every possible advantage in the marketplace. They have brand recognition. People who don’t understand the nuances of the system naturally “trust” them because they’re the name they know. They’re bigger than the other guys, they have more money than the other guys, and they’re seen as a stable company that can be trusted. So what is the benefit of creating a new REP with a separate license out of thin air? I obviously can’t answer that definitively, as I have never worked at Reliant and wasn’t involved in whatever meetings took place that led to the creation of Pennywise Power. All I can do is speculate.
Flexibility in Marketing
One guess I might make to the advantage of creating a new REP is marketing. Which on the surface seems silly because Reliant already has every marketing advantage. But take a closer look at Pennywise Power and their message, and maybe there’s another reason. I’ve been critical of Reliant in the past about some of their highly marketed plans that are extremely over-priced compared to the going market rates. Well, one of the reasons I think Reliant can get away with this kind of thing, besides the fact that people don’t read the fine print, is because Reliant can charge higher prices and people will pay because of the perception of their stability and brand recognition. Any company that can charge more for the same product and still get customers would be foolish to not take advantage of that, right?
For example, a brand new REP not affiliated with Reliant could potentially compete at lower prices with the rest of the market without raising questions about how some plans can be offered at much cheaper rates from one place to the other. In other words, why say Reliant can offer a 12 month fixed rate for 9.9 cents kWh, while the same plan at Pennywise is advertised at 9.0 cents kWh (as of the rates listed by both companies on 10/19/2011). And this is despite the fact that Pennywise and Reliant are the same company, with the same officers, and the same addresses. But operating as separate entities allows them to sell the same plans at different prices despite the fact the costs are the same for both companies.
Customer Complaints and Statistics
There’s a common perception in the deregulated electricity space that there is an inherent risk in chasing high-risk customers with low credit ratings. For starters, there is the obvious concern that they might not pay their bills. Some people would also suggest that high-risk customers are also the ones that are most likely to file complaints with the PUC. I don’t know how accurate this perception is, but I do know that many REPs have tried to market to at-risk customers and most usually end up walking away. Some REP’s have moved into the Pre-Paid electricity market thinking it will become an effective way to take the risk out of catering to at-risk customers.
Additionally, PUC complaints and public perception are starting to play a larger and larger roll in how customers shop for their electricity provider. And in my opinion, that is a great thing, not only that more people are taking an active part in the deregulated electricity market but also that REPs are paying attention and being held accountable.
But the thing is, because Pennywise Power is operating under a separate PUC certificate, none of the complaints customers are making are being attributed to Reliant Energy. They all get attributed to Pennywise Power. Which would normally make perfect sense, except for the fact that the complaint contact for both companies is the same person, right down to their identical addresses and telephone numbers listed on each PUC certificate. Other companies that operate with multiple names such as Texpo (a.k.a. Southwest Power & Light, YEP) all share the same certificate, so all the complaints get pooled to the same place. Not so with Pennywise despite, again, having the same officers listed for both companies.
As a result, Reliant could utilize Pennywise Power to specifically market to a riskier customer base that might be more prone to file PUC complaints. And if a high amount of complaints do come across as a result, well, the Reliant brand remains untarnished.
I think this is all pretty interesting. At the very least, the existence of Pennywise certainly lessens the amount of PUC complaints that are filed directly against Reliant, which makes their complaint record look better. Additionally, it might also come into play in regards to their Better Business Bureau rating. Whether or not Reliant is deliberately chasing riskier customers and mitigating the risk of customer fallout in the form of complaints, I cannot say with any certainty. But if that is what they are doing, well, I definitely think it is extremely clever.
Final Thoughts
While definitely a cunning move, perhaps a better question might be whether it is an ethical practice. Reliant/Pennywise certainly aren’t doing anything illegal here. But should it be legal? Why should an existing electricity company be able to start another REP to do the exact same thing, namely sell retail electricity? It’s one thing for a company like NRG, with massive and diverse assets and energy resources, to buy Reliant and Green Mountain independently and let them continue to operate separately. But I think it’s quite another for a specific REP to create another brand out of thin air which does the exact same thing as the parent company (Reliant). And just to be clear, Pennywise was licensed in 2008, a year before NRG purchased Reliant in 2009. So this was a deliberate action started by Reliant, not something put in motion by NRG.
Personally, I think customers should be asking why a company like Reliant would do something like this with Pennywise. What benefit (if any) does it create for the consumers? I personally can’t see any benefits to Texans. But I can definitely see how it can create more confusion, something this market hardly needs. And I definitely question whether a company should be allowed to create shell entities using the same infrastructure without being attached to any of the liability in regards to public perception or PUC complaints.
Again, this is all speculation on my part, but I would like to understand why a company that specifically sells retail electricity to consumers would need to start another company to do the EXACT same thing, using the same infrastructure, the same company officers, but simply a different name. Consumers should be asking themselves what a company like Reliant has to gain using this strategy. What they can’t accomplish as Reliant that they can as Pennywise? And what are the odds that this move is in the best interest of consumers?
And if I am the PUC, who has the responsibility of looking out for the best interests of the customers in Texas, I might want to ask why this kind of separation of accountability is even legal.