Formation of Crius Energy from Regional Energy Holdings, Public Power Driven by Need for Scale; Platform for Growth, Fallquist Says

"Scale matters" in the retail energy industry, and was one of the driving forces behind the previously reported combination of Regional Energy Holdings, Inc. (parent of Viridian Energy and several other suppliers), and Public Power, LLC, Regional Energy Holdings CEO Michael Fallquist told Matters.

In addition to Viridian, Regional Energy Holdings owns Cincinnati Bell Energy, FairPoint Energy, and FTR Energy Services.

Fallquist, who will serve as CEO of Crius Energy, noted that with the still low barriers to entry in the retail energy sector, there continues to be increasing competition for customers -- at a level the industry has not previously seen.

Accordingly, Fallquist said that successful suppliers must focus on serving customers at the lowest cost. Combining the Regional Energy Holdings suppliers and Public Power achieves lower costs through:

• Lower capital and credit costs;

• Lower procurement costs due to volume, and greater diversity in the supplier's load profile;

• Operating efficiencies which lower fixed costs; and creating a larger base over which to spread fixed costs

The genesis of the merger was the desire to build a platform that will support "aggressive" growth in the retail market, Fallquist said.

Such growth may include additional acquisitions, as Fallquist expects M&A activity to pick up. Fallquist noted that, when it comes to M&A, Crius will be able to tap the experience of Public Power CEO Bob Gries, who will serve as Chairman of the Board of Directors for Crius Energy. Gries previously acquired Public Power's predecessor, and then purchased and integrated into Public Power the Connecticut and Maryland books of ResCom Energy.

The combination of Regional Energy Holdings and Public Power gives Crius Energy a foothold in nearly all viable mass markets, with the notable exception of Texas. Fallquist said that organic entry in ERCOT is possible, but that the company would also review any opportunities to acquire an existing Texas retail provider under the right circumstances.

Fallquist also said that the combination of Regional Energy Holdings and Public Power was a good fit given their complementary sales channels. Regional Energy Holdings has focused on network marketing with Viridian and acquiring customers through incumbent telecom affinity under several brands (such as Cincinnati Bell Energy), while Public Power has used traditional sales methods such as telemarketing and door-to-door.

As previously reported, the existing brands of the retail suppliers will continue, as Fallquist says that such differentiation is needed to reach different market segments and to cover the entirety of the retail market.

Crius will continue the expansion into natural gas that each of its suppliers has already started. In particular, natural gas sales will focus on customers with a low cost to acquire, meaning an emphasis on cross-selling to existing electric customers.

As previously reported, Viridian is also set to begin electric marketing to residential and commercial customers at Delaware and the District of Columbia in the fall. Fallquist cited "significant promise" for the markets, which are surrounded by Viridian's existing markets and network sales force.