In Part One of my article discussing the relationship between Pennywise Power and Reliant Energy, I took a look at how the two separate brands are actually tied together as one company. I also identified why their relationship is different than other REPs in the Texas electricity that have the same energy conglomerates as a parent company. In Part Two, below, I’m going to speculate as to why Reliant might benefit from having a separate brand in Pennywise Power, as well as what it means to consumers in Texas.
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 Energy 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 Power 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.