Brad Hall explains how this billion-dollar company is enjoying success in the post-Enron world of energy marketing.

Brad Hall will be the first to tell you that there’s nothing Enron-sexy about the energy marketing company he heads. As president of UGI Energy Services, he has studiously avoided the high-flying speculation that sank the infamous energy trader. In the process, he has deftly steered the Pennsylvania-based company through some serious energy industry fallout to emerge as one of the larger players on the East Coast.

UGI Energy Services markets and distributes natural gas and electricity throughout the Northeast. It’s part of UGI Corporation, a $5.2 billion holding company with subsidiaries that include AmeriGas Partners, the largest retail marketer of propane in the US. The company has subsidiaries in France and Austria and through joint ventures also serves the Czech Republic, Hungary, Poland, Romania, Slovakia, and the People’s Republic of China.

Although UGI Energy Services is experiencing substantial growth (revenue topped $1.4 billion last year), it is proceeding down a very conservative path. “I can assure you that the way we trade energy is the most boring way you can imagine,” joked Hall. “I’m quick to correct folks when they refer to us as the trading arm of UGI. We leave trading to the hedge funds. We’re not here to make a quick buck—everything is focused on the long term.”

Make your own deal
The UGI story begins with the opportunities that came out of energy industry deregulation. Through the 1980s, the conventional industry model was for natural gas producers to sell their product to interstate pipeline companies, who sold to local utilities, who sold to residential and commercial customers.

With deregulation came the concept of the end-user buying gas directly from the producer. “Basically, everyone could go and make their own deal with an energy marketer, and the gas would be shipped through a common pipeline and to the local utility for distribution,” Hall explained.

But with the freedom to wheel and deal came complexity: multiple suppliers, multiple pipelines, and multiple utilities, each with their own regulations. A cottage industry soon emerged for companies able to cut through the mountains of red tape. “We basically put the transactions together,” said Hall. “We aggregate customers, build up demand, and then approach the producer.”

Hall explained that, originally, what customers wanted from energy marketers was savings on their utility bill. These days, price stability is what the market is demanding.

“The business has evolved from simply guaranteeing savings to becoming more of a risk management business,” Hall said of today’s notoriously volatile energy market (think of the California blackouts and post-Katrina/Rita price surges). “Everything we do is focused on fulfilling orders in the most secure, reliable, cost-effective way without taking any undue risk.”

Ensuring steady supplies and stable pricing means working the phones. UGI buys from more than 30 suppliers over nine pipelines, most of it coming from Appalachia, Texas, or the Gulf of Mexico. It can be a challenging business, Hall noted. “We work on margins measured in pennies with an extremely volatile commodity whose price can change hourly.”

Timely and accurate
Hall points out that, ultimately, “gas is gas” and that the real competitive edge comes in delivering solid service. Here, he points to the company’s crack sales team. “Our sales reps are our greatest asset. There are a half-dozen or so major marketers in areas where we compete, and you generally choose one based on a meeting with a sales rep. From that meeting, you get a feeling of whether that person is knowledgeable about your business. It’s somewhat like choosing a financial adviser. Ours are very well educated and experienced.”

It’s also the little things, like ensuring that energy bills are timely and accurate. “Even when we had just seven employees back in 1995, we always focused on having strong customer service,” Hall said. And the bedrock of UGI’s customer focus is strong IT and back-office systems that handle the complexity of moving gas for 10,000 customers spread across some 31 utilities.

“The gas industry is still very fragmented,” Hall said. “Buying natural gas in Ohio is entirely different than buying it Eastern Pennsylvania. Each is served by different utilities with different regulations. In this business, you need to be big enough to get the credit you need from suppliers, but you also need to be small enough to have local knowledge of tariffs, regulations, and who the local utilities are.”

Hall pointed out that reliability applies not just to being able to provide consistent supplies, but also to remaining a healthy and viable company. “Lots of energy marketers fail in the first 10 years due to being speculative,” he said. “It’s a big thing to a customer if their marketer fails. They can’t just go to the utility and get their energy at the same price.”

Hall shares how UGI competed directly against Enron and, for years, was amazed at what the company was able to do and still turn profits. “We thought we knew the local market pretty well, so we couldn’t understand how they did things.” In fact, Hall shares how Enron has become the subject of a running dialog within the company. “Early on, our board of directors would ask us, ‘Why aren’t we more like Enron?’ Now, it’s more like, ‘Tell us again why we’re not like Enron!’”

The cure for high prices
Hall’s management style reflects his background as a West Point graduate and third-generation serviceman. He brings a centralized approach to the job, surrounding himself with a strong management team and actively recruiting high-potential people.

Key employees are incentivized with a “phantom” stock plan. “Our business unit is not publicly traded, but we give them something that looks and smells like equity in the company,” said Hall. The company created a deferred compensation plan and calculates what the stock is worth based on earnings. “We asked these people to take some risk in joining us, so we felt it was only fair to reward them.”

Looking ahead, Hall noted that there’s not necessarily a shortage of natural gas, just a shortage of cheap natural gas. He predicts that the nation’s next major supply will come from the Rocky Mountain states or frontier areas in Alaska and Northern Canada. The industry is also looking at importing liquified natural gas from gas-rich countries such as Russia and Africa.

“Like most commodities, higher prices drive exploration,” Hall said. “It’s something of a joke in our industry that the cure for high energy prices is high energy prices. When that happens, we see producers more willing to invest the capital to find the next supply.”

Steffen Smith is an Atlanta-based writer and can be reached at This e-mail address is being protected from spam bots, you need JavaScript enabled to view it .