Small Margins, Big Risks: How Fraud Hurts Texas Energy Retailers

Fraud is a silent threat in the Texas energy retail market. Are you doing enough to take care of your bottom line? Today we are diving into the topic of Small Margins, How Fraud Impacts the Texas Retail Energy Market. Let's start the countdown. Welcome everyone to the CG Hour. We are kicking off Season four. Can you believe it? We are kicking off Season four of this show. We are coming to you live on LinkedIn as well as YouTube. The goal of CG Hours is to feature industry experts as well as leaders to talk about the latest hot topics in business and technology. On this episode, we are going to talk all around how fraud hurts the Texas retail energy market. We will be introducing our guests very soon, but in the meantime, I want to welcome all of you to the comments of our feed. Please introduce yourself in the comments. Tell us where you are tuning in from and tell us what you do. I challenge you to connect with at least three new people in the comments so that you can build your network as well. So as I mentioned, we are talking all around fraud in the Texas retail energy market here. And I want to introduce you all to our expert panelists here. To my right, we have Darryl Brown. Darryl, how are you? Outstanding. Thank you. Awesome. It's great to be here. Awesome. Darryl is the executive chairman at Atlantic Energy. Daryl, give the audience a little kind of overview of your career. Oh, as I was telling her, I've been in this industry since Benjamin Franklin flew that kite and lit up the key, I guess. I worked for many years at TXU when it was a monopoly regulated company. Direct Energy, after that started a company called Hudson Energy, and, Hudson Europe, and then, was CEO of a company called North American Power, and I've been in a consulting business through part of that also. So yeah, I've been in the retail energy industry since Moby Dick was a minnow. You're like the original grandfather or godfather of energy. I've heard that before too, yes. Pratik's colleague said that I invented electricity. Oh, well that's a great distinction to have. Over here on the far right, we have Prateek Malvia. He is the Executive Vice President at CG Infinity. Prateek, please give the audience a brief overview of your career. Hey guys, Prateek Malvia. I started with CG Infinity in two thousand eight, connected with technology starting two thousand six. Primarily, I have always worked on technology on retail side of the business, worked for a few companies where Daryl started. That's where my starting retail energy career and technology side with Daryl, and still here. Awesome. Thank you. So we're going to dive into the topic. And please feel free along this whole episode to put in your comments and questions into the live feed. Anything that you have to ask our experts, I'll bring it onto the show as well so that they can answer your questions as we go along too. But before we get into the questions, we want to play for you an explainer video to kind of give you a little context of what exactly is fraud in the retail energy market. And before I do that, there are two terms that I want to have Prateek explain for us, because he's going to mention that in the explainer video. And that is the term and the acronym REP and POR. What are those? Okay. REP stands for Retail Energy Provider. There are retail energy provider who provides you energy. Right? So but in the regulated market, there are some providers you can switch between. So REPs are the companies who are providing electricity to the consumer. Now they may be regulated or deregulated. That's a separate segment. But REPs are the entities which are providing electricity to end consumer. Not necessarily they are responsible for producing the energy. They are only responsible for delivering and providing electricity for the end consumer. Got it. And then POR? POR stands for purchase of receivable. In the grand scheme of things, Texas is a deregulated market. Many states the U. S. Are deregulated and many states are regulated. In deregulated markets, are two types of primary segmentation of markets. One is POR and one is non POR. POR stands for purchase of receivable and non POR is you are not guaranteed a payment. In the POR market, for example, Northeast, the utility or the regulatory body guarantees whether the customer pays you or not, REP will be paid by the regulatory body. Whereas in Texas, there is no such guarantee. REPs are expected to collect their payments from the customer. If customer doesn't pay, they are at risk. Got it. Okay. So with those definitions in mind, let's roll the explainer video. Retail energy companies are generally low margin companies. One percent of fraudulent customer could actually take away all the profit for the year in retail energy domain for that particular company. Hi. I'm Prateek Malvea with CG INFINITI. Let's talk about fraud in retail energy industry. Texas is one of the largest deregulated market, and it faces a unique challenge of fraud. There are other markets which are deregulated in US and they also have some kind of fraud but it is experienced very heavily in Texas. And let's understand why. Texas operates under a non POR market which is there is no guarantee for a REP to receive their purchases. Whereas the other markets in the US are POR markets, where the REP is paid regardless if a customer is paid or not. In Texas, collecting invoices or payment from customer is a duty or a responsibility for an RDP, which poses its own risk in case of fraud. How it works: A fraudster will use somebody else's information to sign up for electricity for their home or apartment and before a REP knows they rack up about sixty to one hundred days of free electricity before they vanish. This happens very frequently into apartment complex or low income areas where people move frequently. The REP is left with the sixty to one hundred days of non paid debt and this model can be repeated with other REP and it's an ongoing method. There are certain checks which an REP can implement. For example, check for the telephone number has to be a legit, should not be a repeat number. If it's a voice over Internet telephone number, like a softphone number that has a high risk of fraud, check for the email. Email needs to be legitimate email. There are, sometimes for fraudsters sign up with the fake email addresses, and there are services to validate that. Do a soft check. Some REPs are starting to credit check a lot. There are some third party services which can be implemented to actually identify the person. Here at CG Infinity, we help our customer minimize their fraud impact. There is no silver bullet. There is gonna be a tailored solution always, but we know the industry and we have helped our customer minimize their fraud impact. Please feel free to reach out if you have any questions regarding fraud or need any help. Okay, now we have a great context and background for what it is. I also want to do a shout out to some of our folks that are tuning in. We see Igor tuning in from Dallas, Lacey from Plano. So thank you for joining us. And again, please feel free to comment as we go along and ask your questions. So Darryl, I'm going to start with you. You've obviously have a lot of experience in the energy sector. Tell us a little bit about the experiences you've had with fraud and the fact that I think there's different market models and then why Texas is so much more impacted by fraud than other states. Yeah. Let me let me talk a little bit about that. But first, I really enjoyed that that piece that Prateek just did, and I think he should be given the Ryan Gosselin Lookalike Award winner for that. Really great job. Get an Oscar, you get an Oscar, you get a car. Okay. So let me explain and it's expanding a little bit on what Prateek said of what I'll call the three business models in the United States, for delivering. And I'm focused more on electricity than gas, but similar analysis could be done about natural gas. The first one and the majority of customers in this, and by the way, I will list these in reverse order of what is most valuable to the consumer, to the customer. The least valuable and the rates are higher is those that are monopolies. The rates are set by government regulated entities. Most of the states in this country have that type of model, where, when I worked at TXU before deregulation in Texas, we used to say this is not Burger King, you can't get it the way you want it, you're going to get it the way we require you to get it, and the rate is set by government entity. The second of the three models will be the non Texas competitive space Ohio, Pennsylvania, Illinois, New York, Massachusetts. Those, they're largely in the Northeast. I left out Pennsylvania, one of the larger ones, but they have a utility is still in existence there and that's the default service provider and the retail energy company, if they're able to get a customer from the utility, then the utility still bills them and to some degree that fraud or bad debt is socialized across a group of customers and it makes it quite frankly harder to commit to defraud the utility that way. The most advantageous to the consumer is what I have referred to as the Republic of Texas model, or otherwise known as ERCOT. Now, in the ERCOT space, there are still those that have monopolies in terms of co ops or like the city of San Antonio or the city of Austin. But most people in Texas can choose their energy provider and it is totally competitive. The utilities have nothing, to do with it except that they do the transportation. And so given that, that's the most valuable to the consumer, that model, but it is also the easiest to defraud the retail energy companies. And the retail energy companies are responsible for billing and therefore take all of the risk of that customer paying or not paying. Now since the beginning of time you use a certain amount of electricity and then you pay for it sometime after that, So therefore the rep is granting you credit so that you can can pay later and those that don't pay then runs up quite a large tab. And I'll talk about some math around how the how bad one person defrauding the company is and how that works out mathematically in a minute. Yeah. Thanks for explaining that. Well, Prateek, from your perspective, what are the different types of fraud that you've seen? So thank you, Texas. Thank you, Daryl. First thing, Republic of Texas. That's gonna start some Yes. I'm just gonna let that slide. Awesome. Okay. So talking about fraud fraud, fraud, there are different kinds of fraud. The simplest one is usage fraud, where you signed up for a low rate plan saying that you are just a small apartment, but somebody is running a Bitcoin farm in an apartment and you rack up the usages, which is RDP was not expecting, and that that is very common here in Texas, but that's very elementary level fraud. But then there is, like, a a identity financial fraud. So identity fraud is, generally speaking, customer signing up on for electricity on somebody else's name and and not paying the bill and moving on. So and the financial fraud is in the same line that even though you are, were the customer legitimate customer, but then you move on to the next address, and you don't pay your previous bill on purpose. So it's kind of a debt, which is people are are, especially people who move from places to places are occurring. And that since it's a low margin business, the these small instances are really impacting the bottom line of the RDP. Got it. So then how like Daryl, let's talk dollars and cents. Yep. Right? Yep. How does all that fraud that Prateek just kinda mentioned impact the bottom line for these businesses and retail? Probably some people wouldn't have tuned in to this if they thought math was gonna be involved. So let me We're all nerds here. Since we're all nerds, then then let's let's kinda walk through the math. Yeah. I last night downloaded a publicly available, stock market retail energy company and looked at over the last two years of twenty three and twenty four and and came up with this and and I will assure you that they are normal. The bad debt from this company, which is when you have fraud it'll end up going through the the financials as bad debt, was about one point five percent. And so someone would say, well, wait a minute, Darrell, small amount. I mean, why are you focused a whole Dead Gun podcast on that? Well, by the way, the earnings from this company as a percent of revenue was around two to two and a half percent of revenue. So therefore, the bad debt was somewhere between, depending upon the year, was somewhere between twenty and fifty percent of earnings. So this is this is really painful and again the retail energy company gives credit to that customer and then that customer is expected to pay later which allows them to defraud you a little bit. So let's work through the math on that, kind of the back of the envelope math math of what I just told you. If you had, one customer that commits fraud that that takes a they get to take about two and a half months worth electricity, then it takes around a hundred and fifty to two hundred customers that are actually paying you for you to break even and earn zero. So for every one bad customer, you've got to have one hundred and fifty good customers, that won't make you any money. That won't keep you in business. You will pay the stockholders nothing given that. So you have to improve those odds. When you work through this math, it's clear that the picture is, and I predict this math will get even harder as time goes along, margins will even get thinner. And as those margins get thinner, then the successful companies, the ones that can actually stay in business, will be those that are able to manage their fraud to a really low level, not let those fraudulent customers come into their database and start taking power from them and start running up the debt quite a lot. So the difference will be whether you're successful or not successful will be in how you prevent fraud in the future. We think we need to think about this make I need to make this clear. We think of a customer as a home or an apartment, but there are a lot of customers who are commercial, are warehouse, who are restaurant, who are a steel manufacturer, centers. Those are not what we're really talking about here because when you in Texas and in the other competitive space, when you have a contract with a steel manufacturing company that uses large loads, your contract is really tight and it has guarantees of payments and it has liquidated damages if you use more energy and all that stuff. So what we're talking about here is the non commercial customer, the residential customer, whether it's a rental unit or they own their home. As a consumer, had no idea the margins were that small. Like, Prateek, from your perspective, how how does fraud impact the bottom line from some of the customers that you have worked with? So it's a fraud impacts, like, the the the way Dell was explaining it's it's only one and a half percent. But if the company is making two and a half percent of its revenue as a Yeah. As a as a margin, then then the bottom line is is going away. Like, you don't have a lot of margin for error or a lot of room to actually play with things when since your margins are low. And and the way the way it plays out is, also, especially in Texas, you are your electricity bill contains two parts. One is your TDU charges, transmission distribution utility charges, and one is energy charges. Whether a customer pays you or not, you are still responsible for paying your TDU charges to the utility. So so it doubled things. You won. You are expecting some payment then came came through, and you're still owing money, which is you're gonna deliver to TDU charges to utility. So and then the both sides, it it it takes away a lot from the bottom line, and hence goes the creativity and the competitiveness of the market because now, not just the bottom line, but at the end, REP will socialize the cost against other good paying customer. So fraud indirectly is increasing cost for everybody. It's like it does impact immediately the REP, but eventually, in the long run, it is impacting every single b to c or b to b users Yeah. Or consumer. Dive into that a little deeper, Daryl, because, like, I'm I'm a consumer of energy. Right? I'm a customer. Right? So on one hand, I listen to this. I'm thinking, oh, it's just the company's kind of problem. Right? But tell me how it impacts me as a consumer and customer. Yeah. Great. Very, very critical point that your question implies, and that is the people that are gonna pay for it are the consumers ultimately. There's no free there's no free lunch. So if critique doesn't pay his bill and you and I are paying ours, then we at some point have no other choice but that our rates have to increase adequately to pay for that fraud. But in Texas, this is competitive and therefore if Prateek's company doesn't do a good job managing fraud and my company does, his will go out of business and mine mine will stay. So the long term evolution of this is we will get this under control. Yeah. And it it becomes a a battle for survival for RDP itself. And as I'm repeating what Daryl just said. The company which manages their fraud effectively will survive in the longer run and the company which does not is going to go under or be acquired by somebody else. Well, and Daryl, you've I mean, you've been in the business for decades. Yeah. You keep reminding me. That's gonna cost me later, isn't it? No. It's not. Tell us how you've kinda seen it evolve. Right? Like, twenty years ago, how did fraud show up and then how has it evolved now? Prateek has probably heard this at some of the industry meetings. I my standard speech is about the evolution of the industry and how it evolved from monopoly to competitive and then kind of taking that and projecting of how it will work in the future. But in thinking about this podcast, it was along the lines of the evolution of fraud. How do people steal? And this will be focused on electricity. It's harder to do gas to tell you the truth and it's not as big a deal because the dollars are not as large. On electricity, the initial way that people would commit fraud would be the wire comes into their house and it goes to the meter and they wire around the meter and they can take the meter out, can put some shunts in and all of that stuff. Now, the way that the utilities combated that was every month the meter reader came around to read their meter and they could look and see if there was some contraption around it. Now, I know that because when I grew up in small town Texas, I was the football captain and in the summertime I was a meter reader. Wow. And so, we could see weird things around the meter of which we would we didn't have a phone to call it in. When we got back to the office, we would report that Ms. Jones is trying to steal electricity from us, and the police would go out and arrest Mr. Or Ms. Jones in that case. So that was the initial way of being able to steal electricity. That evolved and quite frankly, as he mentioned it, a lot of them would be apartment renters. You know, when you're in a college town and Joe goes to the frat party and he's sleeping it off on somebody else's couch the next morning, then they go take Joe's wallet and gets his driver's license and calls the utility and signs up for service under Joe's name while he's still passed out on the couch. And they think that's real funny. And I saw this, you know, even when I was in college, people did that kind of stuff. But it was small kind of petty in those days. And in those days you could only get away with it once because the next time you called in, you're calling into the monopoly utility and they now have a record of who Joe was and they won't let Joe go sign up somewhere else if he hadn't paid his last bill. Keep evolving, this became a cottage industry. There are pictures of people that are in the Walmart parking lot on the back of a flatbed truck selling fake IDs so that and with a little instructions on what number you call in order to be able to get your electricity turned into these fake ID numbers. That has evolved from there are some people, I shouldn't call them humans because they they're cheaters, They will say if you give me fifty dollars a month, I will get you free electricity. And they do so because they have a whole bevy of fake IDs that they will call up. Now, we talked about the market models in Texas and how that's the most competitive but the easiest to defraud. Well, you have one fake ID you can call up TXU, Retail Energy, and sign up for three months with them, and then they cut you off, and then you call up Direct Energy, same ID because TXU can't tell Direct Energy that's a violation of privacy. So you can just take different companies and defraud the same apartment unit or house would defraud multiple different retail energy companies. The this has evolved into the internet being able to provide fake IDs and and fake driver's licenses that are extremely well put together and and very convincing that these that these are accurate. And so that allows a much more sophisticated defraudder, I guess is the right term. So, so it's interesting in communities these things get around. When I was a meter reader the joke was that we would tell, one customer that you know that your meter slows down if you put a brick on the top of it and then the next month when you come by every meter has a brick on it because everybody wants to say, was a lie, it was a joke, but, but when someone is able to defraud the big utility company and get away with it, then it kind of becomes our more modern term would be viral and people get excited about doing that kind of stuff. Well before it was word-of-mouth, you just tell your neighbor, now you post something on social media, Thousands and ten thousands of people hear about it. Yeah. And and, like, there are WhatsApp WhatsApp, Telegram chats, social groups. People meet on social gathering, and, hey. I'm getting electricity for fifty bucks a month or ten bucks a month. Just call Joe. Yeah. Just call this guy. He's he's been helping me for the last twelve months. I'm like, okay. I can get that. So so that's how that's how they they it has technology has made it easier for fraudster to actually reach their target audience. So if you wanna do that, just call it Pratik. He knows how he knows how to do it. So I can I can totally see as you guys explain it how it can really escalate at an exponential level? Right? Because you you can communicate fraud ideas to everyone and anyone on social media, then you add that to the low margins, and then it could just be a a train wreck. Right? If things aren't tracked properly? Yep. So I we wanna share with you another video here that Daryl helped us together and just to give you even further insights. So let's roll that now. I am a true dyed in the wool Texan, fifth generation, and I am very passionate about free market capitalism. However, every system has its challenges, and this one that I'm gonna talk about or that we're going to address is the subject of fraud in the I am fortunate to have been the CEO of a handful of retail energy companies. I can tell you from all of that experience that the best market in the United States, at least, is the Texas market. It's the most competitive. It's the most open, and quite frankly, benefit from that competitive standards here in Texas. Those standards of which we run industry were developed in the very late nineteen nineties and the early two thousands. Those standards did not allow for sharing of data between competitive retail energy companies, which quite frankly opens the door to some vulnerability associated with fraud. I may look thirty five years old, but in reality, I was involved in these meetings when these standards were established back in the late nineties and the early two thousands. The important thing of those days was privacy of this data. That was really good, and I support that, but it did lead us to the association with fraud in this industry, and in Texas, that's really important. Texas, unlike some of the other states, particularly in the northeast, that have different standards or different models the industry is built on, in those cases, bad debt, which is a result of fraud, is socialized across the industry and doesn't come down hard on one particular company. That's particularly the way it is in in states like New York and Pennsylvania and Ohio, just to name a few. In Texas, fraud is more than a nuisance. It has to be aggressively managed or it could be a business killer. Those companies that are really trying to do right for their customers can be harmed greatly by fraud if it's not managed well. All parties in this state are affected. The winners are those that manage fraud well can stay in business. Those that can't probably won't. We must develop secure and effective systems to combat fraud. The good news is we can do that. That has been done without sacrificing the principles that the market was built on in the first place. We would love to hear your thoughts. Anybody have any questions about that, feel free to reach out to CG INFINITY. I feel like I'm getting such a huge education about this whole topic here. And I I see folks in the chat here. Rebecca says, I remember a scene in the TV show Shameless where a family stole electricity from their neighbors. And Matthew also responded, that happened on King of the Hill as well. But then Hank felt too guilty afterwards. But, yeah, it's it's in it's in pop culture. Right? Energy fraud. We did get a very good question here from Natish in our comments. Maybe, Darryl, you can address this. Can all energy companies not just go with a pay as you go model in order to reduce the fraud? Yeah. That would be they are especially in Texas where you have really advanced metering, you can actually read people's meter every day. And you could, if you wanted to, debit their credit card. There are a number, there are a small number of retail energy companies who have offered, advanced pay. So you're going to probably given our forecast, you're going to, your bill for the month of January will be one hundred and twenty dollars So let's charge you one hundred and twenty dollars now and then we'll true up on February the first. Those are not very popular just because they have the estimate and then the true up and then the billing gets a little harder. Doesn't mean that nobody took advantage of it, people did, But, the price is either the same or almost the same as if you did the traditional post pay. So it turned out not to be popular, but could it be done? Heck yes, it could be done. And it would solve this problem. Well, and I think a lot of things can also be solved with technology, right? That's what you deal with, right, Pratik? As we kind of look at solutions now, so we kind of have a good understanding of the problems, the issues, the challenges. How do you kinda see technology being leveraged to address fraud? So yeah. So technology is the solution. One of the solutions, I I think that there could be some process oriented solution, but technology is gonna be the key to to solving this problem. So in order for to solve it, let's talk about where the fraud is occurring. Right? So there are multiple stages when when a new customer is coming in and their intent is to fraud. Let's largely divide it into two different states. One is pre on flow and then another one is post on flow. So when you talk about pre on flow where the customer has requested electricity but you have not started supplying. You agreed to supply the electricity but you have not started the flow of electrons to keep it simple. Right? So during that duration, you have an opportunity to implement some checks. Now any check we perform, it comes at a cost of delayed enrollment and and losing your potential customer because while you're preventing the fraud, you risk on on frustrating your actual customer who are who are not intending to fraud and lose them. So it does come up with the with the with the cost of losing legitimate customers. But things like, some very basic checks such as make sure the email address is valid. Like, it's not a dummy email addresses. There are services you can opt for that. Make sure they are not supplying the voice over Internet kind of phone. Like, this has to be your your regular phone number too. So those are some checks which you can implement, then do a small soft check on on on the from the credit bureau if that's that's something we can opt for. So those are changes which will not really impact your customer's experience on signing up for, but it still gives you some kind of assurance on on that there is prevention against fraud. Right? But then there is some really ID verification kind of situation, which I see eventually gonna happen, like, apply for a credit card today, you don't get it without the social. And so so you're gonna be some kind of ID verification process where you're gonna have to submit your driver's license or or some kind of Social Security number or something which will allow you well, which will allow them to identify you as a individual before the electrons are are flowing. So those are steps which can be taken pretty slow, and I'm seeing a trend that more and more retail energy companies are moving towards ID verification or some kind of verification beforehand. But that's that's the journey this this industry is gonna take. Then once these electrons are flowing now the sooner you catch a fraud, the better it is. Because if they are able to rack up a hundred days, and let's say you find that this is gonna be a potential fraud at thirty day or sixty day or twenty days. Right? So you save up remaining days one way or the other. Right? So Yeah. Now now how are you gonna gonna find out? So you can run some, advanced analytics algorithms. You do a database query, or let's say, a customer touch point. For example, we implemented Twilio for one of our customers where, post enrollment, somebody made sure to call them and talk to them, hey. How's everything going? Make sure it's a real person. Make sure it's a real person. One, the customer feels really great that I got a call. Second, you're gonna get an assessment that, yep. That's a real person. He's gonna pay the bill. So there are some process things and technology things together they can actually help fight this fraud situation. We call those welcome calls. And the good customers really appreciate that you reached out to them. And the customers that intended to defraud you, either won't answer or they'll give you their own round or not good answers. Not good. Yeah. And so yeah. And and and the call tells you a lot that whether the customer is gonna be fraudster or not. So then you have a special attention to pay and then other processes that how can we make sure we minimize the electrons are flowing, how can we make sure to minimize this this this hundred to one hundred and twenty days or eighty to one hundred whatever days to least possible loss. Right. Well, Darrell, from your perspective, how do you how have you kinda handled that balancing act between trying to make it easier for people to onboard and sign up for the energy versus all these security checks and measures and controls that need to be in place? It's an inside the industry great question because, things have evolved inside retail energy companies. Initially it was all about sales. The three most important, all three most important things in a company was sales, sales, sales. And quite frankly, we initially incented the sales team. That's all they worry about is sales. Just because you sign up people that are going to defraud you to the guy that's incented or the gal that's incented to have more sales, more meters, more customers, doesn't Nothing else matters. And if you're going to lose money on those customers, they still get their bonus. So better run companies have incentives in the sales area for sales and then long term viability of those customers. So sales that that last more than three months, he indicated a hundred days or something like that. So if you get, one percent of your customers that last less than a hundred days, then then your bonuses diminished because of that, which changed the entire thrust. It is a normal and good tension between the sales organization and the operations of the financial people. That's the way it's supposed to be inside. There's always an argument, but you never can just set it up for sales value only, and then we'll worry about the problems later because you'll be out of business later. So that tension, while it's healthy, it requires a significant amount of oversight and management of those people to be able to follow the right protocol. The point that was made in the little video I want to make clear, and that is that in the future, the difference of you being successful in the retail space, the residential retail space will be how well you manage fraud and how well you manage your your margins. But margins will continue to erode in this space and the big guys will be the successors. And so, the way you manage fraud and the technology that people like Petite develop in order to do that And good paying customers probably will have to over time develop a little bit of a thick skin. I signed up for something the other day and it asked me, have you lived in any of these places? Have you you know, all these are public but it's things that I at least would have argued. I don't want to answer this. I just want electricity. You probably have more, sensitivity to what they're trying to do, which will hold down your rates in the long run. Well, it's like educating me as a consumer and customer not to be annoyed with all the checks because I guess now after this episode, I'm thinking of it as the more checks the better because then if fraud does happen Yeah. You know, I'm less likely to be affected by it. Yeah. Right? Yeah. It's so I guess retraining us consumers that checks and balances are good even when we're signing up for electricity. Well, it's almost like politics though. Explaining is losing. You you don't want to upset your good paying customers in order to weed out the bad paying customers. Now the better we get in technology, whether you can tell AI can tell some somebody's voice inflection, whether they're telling you the truth or not, or you get a lie detector or some, you know, some kind of technology that allows for us to distinguish those people early on is absolutely essential for a good running industry. Prateek, we have a question here from Jim Smelly. Since we're talking about tech, we have to kind of talk about AI. Yeah. Right? And his question is, do you have any hunches about how AI will impact fraud? We already see an increase in identity fraud. Does AI provide new tools to combat fraud? Have you seen any? So there are various forms. Yes. There are various forms of AI. When I talk about AI, I'm more leaning toward machine learning and AI, not really on the generative AI side. So machine learning models are improving day by day, and they are providing some more insights onto to what could potentially lead. Also, there is a, like, there is a general trend on when you do a welcome call or your enrollment journey. Your AI model can actually assess that model and tell you the the the output of it saying that it might with the seventy percent confident that it's gonna be a a legitimate customer or with ten percent confident that it's gonna be a legitimate customer. So depending on the parameter you set, now your model can actually assess the journey of a customer and and and give you a preview whether it's gonna be be a fraudster or not. It's it's it's it has more similar use cases than retention models, which we've been using the industry for years that they they come up with strategies to actually assess which customer we will be successfully able to retain at what price. Right? So so this this game of validating an enrollment is is basically going in the same route of of figuring out what parameters we want to put in and what confidence level we have. Got it. Well, for those of you out there as we are going through this episode, I know my brain is kind of churning as to all these kind of prevention measures. One thing that CG Infinity has put together is actually a fraud prevention guidebook. So we will pull up the QR code there for those of you that are interested in downloading a copy of that. You know, pull up your iPhone and scan that QR code and you can download the CG Infinity Fraud Prevention Guidebook. It's a great resource to check out to kind of get yourself prepared. And you may think you're prepared, but maybe there's other things that can be done and other things that can be considered as well. Now Prateek, you already mentioned some of the kind of pre on flow things as well as the post Onflow technology solutions. Yes. Outside of technology, because after all technology is the tool Yeah. Are there business processes and, like, operational flows that companies can look at? So there's one thing which Daryl touched on a little bit, you know, a few minutes ago, maybe he'll explain a little bit after me. So right now, as per the law, the two retail energy companies cannot share data on the fraudster. Right? So that's that's prohibited by law. But then if you look at the other industries where you have credit, like Yeah. Credit collection companies, agencies which are actually collect providing you the information. Right? So so at some kind of that, I think it's a legislative change which needs to happen. Daryl can speak more about it. But that needs to happen for the industry to be able to actually prevent fraud in the retail space, for b two c. That's that's thought your thoughts, Daryl, on that? Well, I I was actually gonna gonna bring that up, and it's somewhat old school. But but yes, if you could have, an independent entity that is sworn to and maybe government, approved that you're going to to meet certain standards, then it is appropriate or maybe even the current credit bureaus to have a possible previous fraud detection kind of a, a bullet that that this is this should be manageable. Nobody wants to allow this to run rapid and it and it hurts. Whether I don't know actually whether it takes legislative changes or not, I personally don't think so. Okay. But it would take somebody identifying this as a need that the market could take advantage of and would pay for and run such a database as an independent provider like a credit bureau or credit agency. So I think that that's one possibility and then there's all types of other AI possibilities. I don't know what the best solution is. I think that it's too early in the process for us to center on just one solution. But hopefully there will be a handful of those that you run your customers through in order to dramatically limit this problem. Do you think that all these providers will share information with each other over time? All of those providers would gladly share to an agency that has certain guardrails, certain regulatory guardrails and approvals for them to say, I was told that you know, has cheated three different companies so far and so watch out for this driver's license number. But exactly what form that would take, I'm not an expert in the legalities of credit bureaus limitations. Maybe that's where those large language models Yes. Need to come in? Also, yes. And also, like, from a so since you asked about the process, so, starting staying on the process topic, so com comparing retail energy with, like, banking industry for, say, banking has been around for two hundred years plus, I think. Retail energy has been around only for twenty years. We are still going through a lot of adjustment and maturing as an industry, And there are no federal regulation yet. There are federal regulation on on guarantee of, like, power and stuff like that, but not really a lot on the retail side. So this thing there will be some changes in coming years or expect at least I'm expecting that in in in coming years, there will be some federal regulation, and that will allow some processes to improve. Right now, every state does state does their own thing. Like, California has different models than Northeast and Texas. And and all these things are trying to achieve the same objective per se that making it competitive and cheaper for the end consumer in their own way, but it it's going through some challenges. At the current state, what I've noticed from a process within the company perspective is that there are sales team and operations team. So so so the the department which is responsible for sales and the department which is responsible for delivery and invoicing are not connected well. Like, there are there are some gaps. They all operate from their own source of truth. It it will be not surprising for us to know to not have this exact same active customer count across all three departments. You you ask the billing department how many active customers you have. You ask the operation department or your sales department that, hey. How many active customers? Your answer will come out to be different from all three forms. So so there are some internal, like, having the single source of truth, aligning your data well data really well, and not working on obsolete data. There are most of the company still have some form of Excel running in there. Oh my. If it if it ups to me, I will as an organization, I will, like, discontinue Excel, Use PowerPoint for representation, but do not use Excel. It is it it it goes into silos. It builds a lot of things, which is, like, hey. I'm running this my report on the side, and I have this data, but the data is now They could be tribal knowledge too. Yeah. Because only someone, one person knows, but the data they're operating on is old. So now you have a completely different report when the reality is, and somebody takes a different time stamp and then goes from there. So it's this whole mess. Yeah. Can I expand on that just a little bit? This point's really good. But but from a macro perspective, the the entity, the the the institution that benefits the most from competitive energy markets is the customer period, end of story. Whether you're talking about number of services that you can do, the quality of those services, the number of options that you have, and something that's very clear is price. States that are, don't have competitive energy markets there since two thousand and eight, when all of them that are open now opened, then the non competitive, the monopoly States have gone up in price where the competitive states have gone down in price. Now, given the most recent inflation over the last four ish years, both have gone up, but still being in a competitive market, the consumer is the one that advantage. So when you put in a good model like this, then you're probably going to have little things that pop out. I will consider this a little thing that pops out, but margins are so thin that that pop out could kill you. So you really have to get control of it very fast. But I don't want to throw out the baby with a bath bathwater. When we had the twenty twenty one cold snap Yuri, people tended to think that, okay, Texas has got this competitive energy market and they're the ones going through brownouts right now and must be because of the competitive nature. No, it wasn't. And this is something that pops out of a really good model, so I don't want us to beat up the model. I I we just need to fix this this thing very effectively. Yeah. Well, as we kinda land the plane on this episode, Pritique, any kind of parting advice you'd have on telling retailers how to get ahead of fraud? Maybe, like, several things they need to be thinking about right now. So several things. The the thing the the they need to be thinking if if they are not managing fraud today, are already behind. I'm gonna that fraud has been a problem for a few years now. There are so many companies who have started addressing it already effectively. If any retail energy provider or REP is not managing their fraud day in and out, they are already behind. They need to start going get going on that. One other thing is is there's a sweet a right balance between how much constraint or how much checks you want to put and how much checks you don't want to put, and you want to make sure that that's something you're aligned with. There are some checks, again, as I was saying earlier, which does not impact the customer experience on onboarding. You should you must have those always. And then there are check checks, which actually have impacts on customer experience, then you can negotiate, okay, how much impact I want to have versus how much impact I don't want to have. There are some retailers actively do not serve certain ZIP code because they tend to observe a lot of fraud in that ZIP codes. So always be on the lookout that, like, okay. If I'm so it will be surprising if you run a report later on. Right? And that's where your your machine learning capabilities comes in play. That if, you do an assessment by ZIP code, that where did I make money and where I did not make money, you can actually eliminate your two ZIP codes, which has most fraud. Wow. And the rest books are really fine. So it's like your your outliers, and and technology can help you identify your outliers. And If you just get rid of your outliers, will eventually have a sustainable business. These things do not require an open heart surgery. These are small changes which you can make within the organization to actually effectively manage your fraud. And and and and customers or the fraudster will always find new ways of Yeah. Of commit committing fraud. So so be on the lookout on always on what's new happening. That that's all I can say. Be preventative Yeah. Be preventative. Reactive. Right? Oh, yeah. We we've been reactive for last few years. I think I think some of the retailers are are at at par with the market right now. They're happy with the where they are from prevention methods, but not be complacent on, okay, we are done with it. It's an ongoing battle like you have a battle with credit card industry. They always see fraud coming up, this going to be the same story for retailer. Daryl, any kind of parting advice for the retailers out there to get ahead of You know, Prateek will I thought that Prateek's answer was how to get ahead of fraud. Thought he was going to say hire him. Yes, please. I'm going to give you my answer from a CEO type of level. Please. When you, your operations officer better be good at preventing fraud, and you will ask, you need to ask some three questions if you're getting a new one. Can you prevent fraud? Can you prevent fraud? And the same thing. So, so yeah, you need to highlight this as one of the things that you have to take care of. It doesn't mean you can be laxed on the other hundred things you've got to do, but this one is one that could could hurt you and it has a tendency to be a little viral. So it could get out of control very quickly. And then also that point, think it really stuck with me when you said it earlier about the quality of the customer. Right? Yes. That these are people that will pay their bills and yeah. Yeah. Your favorite customer is one that pays his bill on time or maybe a little bit late if you charge him a late fee. But, yes, those customers are the ones you want. And not have sales just chase the number. The books that people are buying now are the mature books because they're ones that their fraud has already happened in that customer base Okay. And they've and they they didn't pay their bill, and now they're gone. And the book is only half of what it used to be, two years ago, but it's the half that you actually want. Yeah. So, yeah, weed those customers out of your book, and you have a valuable business. Yes. I do agree with this, that there is a trend on on special scrutiny while doing an M and A activity in the industry. It used to be smoother sale a few years ago, but now every M and A takes a lot longer and, costlier, actually, to view out the fraud customers. Yeah. And the ideally, like, the first first, checkpoint is normally is like, hey. Okay. Let's keep all the customers aside who has been paying for the last four months or three months. But Yes. But then the newer ones which you got in the last three months or two months, that's when they're like they want to scrutinize a lot because, that those ones will have the highest amount of fraud. Yeah. And then I guess for me as a consumer, be patient with all the extra security measures that come up. But now I understand why. You guys have really shed a light on that impact down to all the way to my customer level basically. So thank you Prateek. Thank you Darryl. You're welcome. For those of you out there, be sure to connect with both Prateek and Darryl if you wanna learn more or you have further questions. And you saw earlier, you can always grab that QR code. We will provide a link in the comments as well to get that fraud prevention guidebook from CG Infinity. And be sure to tune in next month. We are going to be talking about the The Win Win of Giving Back. And that will be on March twelfth at noon. And I just want to kind of wrap up with the great values of CG and Infinity, the fact that they put people first, driven to transform. And so as we wrap up here, we want to play for you a video of our season three recap and some of the highlights from last season. So thank you everyone. Thank you for tuning in and we'll see you on the next episode. Thank you. I decided to do mental health segment in one of my town halls and my leaders really stepped up. I have to think that there are some very intelligent, you know, copyright and patent attorneys out there right now, you know, drawing lines in the sand. This technology, the advantages of this are profound to a business, and there's something you you can't or shouldn't ignore. The AI that we utilize takes a baseball game, and let's say traditionally, you might be able to bet on a couple hundred things throughout the game. We can add fifteen thousand betting opportunities to a single baseball game. The cyber strike in two thousand eighteen, it actually forced regulatory change where energy companies had to put down a larger sort of bond in order to even operate in the market. So when you think of the positive patterns, when you think of habits, when you think of feeling a little bit known, AI can really support that as well. Key for retailers is to have KPIs in place where you can proactively identify issues and try to resolve those before the customer is impacted. Player of props, which is not just how many points will LeBron James score. It's like how many assists will the second stringer who may or may not get off the bench produce? If there is drift racing on the sweep, yeah, There could be propositions that could be voted on and then AI backed cameras could detect such activities. From a language standpoint, there's so many benefits, right? Because you have a tool that knows how to read a name or maybe understands where the name is from, has the ability to learn how to pronounce it. This is a place that I I can belong. This is a place where I'm valued. This is a place where I can I'm willing to spend my precious life.