Deregulating Energy: When Less Is More

by Filed Under: Business Blog

Jevin Sackett EnergySince the country’s inception, Americans have debated the role of government—and its regulations—in the free market.

There’s little new about the debate, with some arguing that government has a significant role to play in ensuring ‘fair business practices’, and others arguing that ‘unleashed’ entrepreneurial spirit is the engine that drives our economy.

And while that debate rages on, it’s instructive to look at the results of deregulation—or, put another way, the diminution of government oversight—on the nation’s retail energy sector.

A clarification: “deregulation” of the retail energy sector does not mean that there are no laws pertaining to the industry, merely that the government has freed up the sector for competition in an open marketplace; put simply—deregulating the retail energy sector means providing consumers (both commercial and residential) with a choice of which company they’d prefer as their provider of electric power or natural gas.

Of course, this is a topic of considerable interest to our company. Our subsidiary, Sperian Energy, is a fast growing retail energy provider across several states that have deregulated their energy sectors. Sperian’s rapid growth—clearly illustrated by the tens of thousands of new energy customers it has signed up in recent months—is a reflection of the broader consumer acceptance of a deregulated energy industry, wherever that choice is made available.

This change in the energy industry is occurring at a most interesting point in time. In the Information Age, Americans consume more electricity than ever; in fact, the total business generated by the U.S. electric energy sector is estimated to be well in excess of $200 billion.

Most agree that the modern era of the deregulated American energy market began in California in 1996. In the almost two decades since then, several additional states have chosen to deregulate their electric markets; for consumers of power—both residential and commercial—deregulation has meant that they are no longer forced to accept the utilities tariff rate, which may or may not reflect market conditions; the end result of the regulated system often being price uncertainty going forward.

Deregulation provides consumers a choice: they can choose to lock in an electrical rate that meets their budgetary needs, or they can decide to go with a variable market rate that could result in lower costs depending upon the commodity price. As an added ‘bonus’, retail energy suppliers often offer additional add-ons such as rebates, demand response programs and other customer incentives.

Of course, as with any new business opportunity, there are some challenges when entering the deregulated energy business.
When an energy market first opens up for competition, one of the biggest business challenges is educating the state’s consumers. Often, energy customers may not, at least initially, be aware that they now have a choice as to their energy supplier. However, sometimes the state can play a role in educating energy consumers, as was the case in Pennsylvania. Through its ‘Choice Program’, that state proactively informed consumers about the deregulation; utilizing bill inserts, as well as television and radio ads, the state played an important role in creating an educated energy consumer.

The adage that ‘old habits die hard’ is also true in this case, and sometimes convincing consumers to switch to an alternative energy supplier can take time; the fact is, however, that in deregulated markets consumers are really only switching the supply portion of their energy consumption, and the delivery of energy to their home or business is still conducted by the local utility company.

Despite the obstacles, there can be little doubt that the move to deregulate energy markets continues to grow nationwide. Some states are moving slower than others: in Michigan, for example, only 10 percent of consumers can choose their supplier, while earlier this year Massachusetts completed their full deregulation of the energy market. Ohio is yet another state that is currently considering full deregulation of its energy market.

In addition, renewable energy—primarily solar—is providing even more possible choices for consumers. Alternate energy retailers do not have to wait for deregulation to partner with established solar companies; such partnerships enable suppliers to utilize their sales force to market solar installations, even in fully regulated energy markets.

Of course, the larger debate over government’s regulatory role in the business marketplace rages on. However, few on either side of that discussion can deny that deregulated energy–and the resulting added choices that it provides–ultimately benefits the American consumer.

The US Dollar: The King of Currencies

by Filed Under: Jevin Sackett, Market News

Jevin Sackett CurrenciesLet’s begin with a quick quiz: of all the products that America exports to the rest of the world, what uniquely American creation is the most sought after U.S. product worldwide?

As an exporting nation, the range of possible answers is, of course, as diverse as the American economy.

And although the U.S. continues to be the preeminent global exporter of many highly desirable goods—ranging from cars and trucks, to movies and television programs—the most sought after American product worldwide remains its most durable and reliable commodity: the U.S. dollar.

Yes, even in an age in which it’s fashionable among some to speak about the decline of American dominance in global affairs, the dollar remains the most desired—and powerful—currency worldwide.

When asked about the driving forces behind the might of the American dollar, economists will likely proffer several reasons for its ongoing supremacy among world currencies. However, I believe that the most significant reason for the dollar’s continued strength is simple: it is both backed by—and representative of—the United States.

All one has to do is read or listen to the news any day of the week to discover how unstable and insecure much of the world is these days. And that global instability and insecurity often comes in many forms: social, political, as well as economic. Even some of our most traditionally stable allies, including several European nations, find themselves struggling to overcome social and economic instability as they continue to wrestle with the after-effects of the Great Recession, as well as the domestic threats posed by terrorist groups at home and abroad.

Which is not to say that America does not face many of the same social and economic challenges as our allies. The key difference is that–despite China’s growing economic strength, and our own domestic economic challenges—the United States is correctly viewed as the “safest harbor” among the world’s major economies. The strength of the dollar simply reflects that worldview.

Contrary to what you might hear daily in news reports, our government is still among the most stable in the world, and our economy remains the largest and most influential worldwide. In fact, in the ensuing years since the Great Recession, the American economy has been the most resilient of all the major world economies.

Add to that the fact that American workers are amongst the world’s most productive–and the immense influence that American consumers’ buying power has on global exports–and you begin to see why the world views the American dollar as the most desirable among global currencies.

Now, there is—of course—a downside to having the world’s strongest currency. American companies export goods to nations around the world, and a stronger dollar makes those goods more expensive for other countries to import. That, in turn, adds to the nation’s trade deficit (the difference between the amount of goods we export versus those we import).

So, while American consumers may benefit from a strong dollar when purchasing foreign currencies for their vacations (in Europe, Asia or elsewhere), there is also a price to be paid back home for the muscle of the US dollar.

All of this may seem to some like an obscure debate topic among economists, but the fact is that an overly strong US dollar signals both good–and potentially bad–news for both American businesses and consumers.

Take, for example, the US auto industry.

In earlier posts, I’ve discussed the resurgence of US automakers, and how our company’s subsidiary–National Credit Center (NCC)–continues to grow and prosper along with the auto dealerships it services.

However, due to globalization, the US auto manufacturing industry is now far more international than it has ever been (best example being the Italian-based ownership of Fiat-Chrysler). In this new era, the price of US exports—as well as domestic imports—resulting from a strong dollar, can have a direct effect on the bottom line of both American businesses as well as consumers.

Still, despite its potential pitfalls, the global strength and desirability of the dollar is a reminder that in an age beset with chaos and uncertainty, America–and its mighty ‘greenback’—is still seen as providing the safest of safe harbors throughout the world.

The Year Ahead – I’m Feeling Bullish

by Filed Under: Market News

Jevin Sackett market newsAs a new year beckons, American businesses find themselves on the precipice of what most economists are predicting will be the healthiest economic growth since before the Great Recession began seven years ago.

After several years of sluggish economic growth, that’s welcome news for American businesses large and small. Still, in the wake of previous predictions of strong economic recovery that ultimately proved overly optimistic, some U.S. business owners would be forgiven for being skeptical about the painting of an economically rosy 2015.

However, this may well be the year that economists are finally correct in predicting solid economic growth. Putting all the rhetoric aside, the recent economic ‘arrows’ point convincingly towards a strong economy in 2015.

A few economic signposts worthy of consideration:

  • According to the federal Bureau of Economic Indicators, real Gross Domestic Product (GDP) in the U.S. grew by an impressive 5 percent in the third quarter of 2014; that is on the heals of the previous quarter’s solid 4.6 percent growth
  • Personal income, another strong measure of consumer confidence and economic growth, was also up by .4 percent in November
  • Gas prices are down—way down—from where they were last year. A barrel of crude oil has declined from over $100 a barrel in the first half of 2014, to below $50 a barrel at the beginning of this year. That savings translates into hundreds of dollars more in the pockets of the average American consumer
  • The stock market has, repeatedly, set new record highs over the last several months, and corporate profits are healthier than at any time in recent years
  • And perhaps most importantly, unemployment has been steadily declining, with the most recent unemployment rate in the U.S. down to 5.6 percent

While a healthier job market is good news for American workers, and signals overall strength in the economy, it also presents the prospect of a more challenging recruiting environment for American businesses. As more companies look to hire new employees, businesses will have to hustle to ensure they can recruit their first choice of new hires.

At Sackett National Holdings, we are on the front lines of the recruiting efforts of American businesses, as our SettlementOne Screening employment screening products play a key role in helping companies ensure they’re hiring the best available candidates.

And when one considers that U.S. businesses hired 252,000 employees in December—after hiring an impressive 353,000 the previous month—the laws of supply and demand dictate that 2015 is likely to be a far more challenging year for companies looking to hire new employees.

In addition to our company’s employment screening experience, as CEO of a rapidly expanding business, I also have first hand experience with the many challenges of ensuring the quality of new employees.

And so while I–like all American business leaders–welcome the long-awaited arrival of good economic news, I also recognize that with that positive news comes added business responsibilities.

If American businesses hope to ensure that economic predictions for a strong 2015 are reflected in their own corporate performance, they must also ensure that their company’s business—and hiring—plans are reflective of, and responsive to, the nation’s dynamic economic environment.

The New Cuba

by Filed Under: Business Blog

For just a moment, picture a place that’s been frozen in time: the streets are lined with Eisenhower-era automobiles, virtually none of the small businesses downtown have a computer and cell phones are as rare as diamonds.Jevin Sackett RepMan Cuba Blog

While you might believe that such a place could only exist on a Hollywood movie set, in reality the description could just as easily apply to modern day Havana, Cuba’s largest city. In the more than 50 years since the United States imposed a trade embargo against Fidel Castro’s Cuba, the world has changed—and changed again—but like an episode out of the Twilight Zone, most of Cuba has remained almost exactly as it was when President Kennedy sat in the Oval Office.

So when President Obama recently announced plans to normalize relations with Cuba, many businesses across America took notice. For regardless of what your view is of that decision—and there are strong arguments both for and against the decision—the undeniable fact is that from a business perspective, lifting the American trade embargo presents enormous opportunities for the world’s largest exporter located only 90 miles north of Havana.

After more than five decades of trade embargo, Cuba presents U.S. businesses with an untapped market for a wide range of exports. In fact, the Great Recession of ’08 actually diminished the already limited amount of trade between Cuba and the U.S.; through October of this year, there was $260 million in trade between the two countries, a far cry from the $601 million through the same period in 2008. And when considering those numbers, it’s important to also remember that the US does not currently allow any goods to be imported from Cuba, including cigars.

While there are many American industries that could stand to benefit from removal of the US embargo on Cuba, one of the largest beneficiaries may well be the auto industry.
In the US, the average age of autos on the road is estimated to be about 11 years old; by stark contrast, due to Castro’s strict rules against purchasing new cars as well as the US trade embargo, most cars in Cuba are well over 50 years old, many as old as 60.
Of course, even when the US embargo ends, there will still be other obstacles for US businesses hoping to develop a Cuban customer base.

One of the biggest roadblocks for potential US exports to Cuba remains the exceptionally low wages paid to most Cuban workers. For example, it’s estimated that the average Cuban government employee—and a huge portion of the population falls into that category—is paid as little as $20 or $30 US dollars per month.

And while government-sponsored ‘free’ healthcare and other services might ease some of that financial burden, unless Cuban wages were to rise, the market potential for US businesses could remain limited.

It is, of course, impossible for anyone to predict with certainty the future of US/Cuban trade relations. However, with the lifting of the decades-old trade embargo, US exporters would be wise to keep their eyes—and businesses—open to the prospect of tapping into an untapped market of millions, just south of the Florida Keys.