(By Karsten Strauss)
“As he tells it, the market is wide open and encumbered by a utility mindset. Bringing a growth-focused, entrepreneurial mindset to the game can make all the difference in the world. “(Utilities) are very good at certain things and very bad at certain things,” said Garrison. “Our business model is designed to exploit things that we’re really good at and they’re not really good at. I think we’ve found a niche where we can do that.”
Meet Matt Garrison, an entrepreneur.
In January of 2012 he and business partners Nathan Laurell and Marc Muinzer started selling product to customers. By year’s end he says they’d brought in about $12 million at 10-15% gross profit margins. In the first half of 2013 their company generated about $26 million gross revenue.
These people didn’t develop a killer app, kickstart a hit ecommerce site or discover an untapped oil reserve—they got into the wide open game of buying and selling wholesale electricity.
Electricity is a $300 billion market in the U.S. Of that, the deregulated electricity market is about $190 billion and growing as more states are throwing off regulation, allowing private entrepreneurs to buy and resell the energy. When electricity is generated by a power company, it’s quite possible for that energy to be bought and sold several times before it finds its way to the outlets in a person’s home.
According to the Electric Power Supply Association, “one does not need to either own any generation or serve any end-use customers. Just as with many other commodities – pork bellies, oil or stocks – individual traders (or power marketers) exist who buy power on the open market and re-sell it.”
So far there about 15 states that have deregulated their electricity industries in varying capacities, including Texas, Illinois, Ohio, New Jersey, and most of New England. Deregulation is underway in Michigan, California and Arizona right now.
Some states could be squeamish about deregulation. Opening the electricity market up to private businesses has allegedly caused market manipulation. The Federal Energy Regulatory Commission recently imposed a $435 million on Barclay’s PLC for questionable practices in the space between 2006 and 2008.
Garrison’s company, the Chicago Illinois-based Energy.Me, buys electricity and sells it to electricity brokers that in turn sell to end-users. He and his 20+ person company are making a killing as middlemen, with about $180 million in contracted revenue over the next 18 months.
So how did Garrison’s Energy.Me grab so much revenue so fast? As he tells it, the market is wide open and encumbered by a utility mindset. Bringing a growth-focused, entrepreneurial mindset to the game can make all the difference in the world. “(Utilities) are very good at certain things and very bad at certain things,” said Garrison. “Our business model is designed to exploit things that we’re really good at and they’re not really good at. I think we’ve found a niche where we can do that.”
Energy.Me’s strength lies in its technology, in particular its pricing algorithm. “It can take a big utility like First Energy a week to price a deal,” says Garrison. “We’ll get a broker on the phone and we’ll price a deal for them literally in 30 or 45 seconds.”
Energy.Me also only focuses on selling to brokers, not directly to customers. Were it to skip over the brokers it would need to invest in a much larger sales force and increase its overhead—a cost adjustment Garrison says he’s not willing to make. “I know for a fact that we have the lowest overhead of anyone in the business with the amount of revenue that we have,” says Garrison. “That in turn fuels our ability to be really competitive and give competitive prices to these brokers.” Additionally, selling to brokers and directly to customers would put the company in competition with itself.
Garrison didn’t always sell lightning for a living. He spent about 15 years as a Chicago real estate broker but began trading in electricity when the market slowed in 2007, founding his own electricity brokerage, Select Energy Partners. “It was kind of a part time thing,” he says. “I was really just studying the opportunity and trying to learn about it.”
Garrison grew Select Energy to about 500 customers before selling it in 2011 to Satori Energy. In 2010 he met Laurell, then a principal at trading firm Infinium Capital Management. He was introduced by Muinzer, with whom he founded a private equity real estate firm in 2007. With Laurell handling trading and product structure and Garrison’s experience in the industry, the three founded Energy.Me to sell electricity to brokers.
Beginning by simply sitting in a room and calling brokers to establish relationships, the team encountered the woes of their new player status. “It was hard to get them to work with us because our average competitor is a five to ten billion dollar utility,” Garrison said. “Customers are wary. We fought through it and built up a reputation in Illinois.” The company has expanded to Ohio and New Jersey and was just licensed to trade in Pennsylvania.
As for the company’s future, Garrison said expansion is key and the company will look to sign more contracts with electricity brokers in deregulated states.
There’s a lot of consolidation in the space, larger suppliers snapping up the burgeoning firms. Last year BlueStar Energy Solutions was acquired by Ohio-based American Electric Power and MC Squared Energy Services was acquired in 2011 by Dayton Power and Light Company.
Garrison does not see that type of exit in Energy.Me’s future. “We’re not for sale,” he says. “We’re going to take company to a $1 billion in revenue.” On its current trajectory, he expects to get there within the next 24 months.
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