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Content-Type: text/plain; charset=ANSI_X3.4-1968 Content-Transfer-Encoding: quoted-printable X-From: Steven J Kean X-To: Sean A Holmes, Elizabeth Tilney, Peggy Mahoney X-cc: X-bcc: X-Folder: \Steven_Kean_June2001_4\Notes Folders\Discussion threads X-Origin: KEAN-S X-FileName: skean.nsf ----- Forwarded by Steven J Kean/NA/Enron on 10/11/2000 01:17 PM ----- =09"IssueAlert" <IssueAlert@scientech.com< =0910/11/2000 06:30 AM =09=09=20 =09=09 To:=20 =09=09 cc:=20 =09=09 Subject: Online Niche Players Capitalize on Natural-Gas Shortage, By= pass=20 Utilities http://www.consultrci.com ************************************************************************=20 SCIENTECH's E-commerce InfoGrid uncovers the efforts of energy-related=20 companies in the ever-growing field of electronic commerce. A sample can=20 be viewed at: http://www.consultrci.com/web/infostore.nsf/Products/InfoGrid ************************************************************************ =3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D= =3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D= =3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D SCIENTECH IssueAlert, October 11, 2000 Online Niche Players Capitalize on Natural-Gas Shortage, Bypass Utilities By: Will McNamara, Director, Electric Industry Analysis =3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D= =3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D= =3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D SmartEnergy, a Con Edison competitor, is offering New York and Westchester= =20 consumers price protection with the ability to lock-in today's natural-gas= =20 rates for a period of one year. In a separate announcement, myHomeKey.com= =20 announced that it will offer energy savings packages designed to reduce=20 energy consumption and lower rates for customers in the face of rising=20 energy costs. ANALYSIS: As reports continue to accumulate that a natural-gas shortage=20 will send prices skyrocketing this winter (see my IssueAlert from Oct.=20 9 on the subject), the most common response from electric utilities has=20 been to warn their customers that they will see higher rates over the next= =20 few months. I can point to several examples. Minneapolis-based Xcel Energy= =20 announced a few weeks back that its natural-gas customers could face heatin= g=20 bills that are 35 to 50 percent higher than their bills last winter. Domini= on=20 East Ohio has warned its residential customers that they can expect to=20 pay about $70 more per month for natural gas from November through January.= =20 And the warnings are coming not only in the Midwest and Northeast=01*where= =20 low winter temperatures drive up energy bills every year=01*but in the West= =20 as well. In California, PG&E warns that its customers can expect to see=20 their winter bills increase by about $25, to an average bill of $75 (compar= ed=20 to $50 last winter). These are just a few examples of utility companies=20 across the United States playing damage control, trying to minimize the=20 customer outrage when customers suddenly see their bills double or triple. Along with their warnings, these utilities give reasons=01*perhaps seen as= =20 excuses by the public=01*for the rising cost of energy. There is a shortage= =20 of natural gas across the country, brought about by a drop-off in productio= n.=20 It was an unusually hot summer, which depleted supplies for energy. Demand= =20 in general has grown to surprising levels. Meanwhile, start-up online companies that many of us have not even heard=20 of are using the rise in natural-gas prices as a golden marketing=20 opportunity,=20 and attempting to take business away from traditional utility companies.=20 SmartEnergy is a perfect example. In existence just since April 1999, =20 SmartEnergy offers electricity and natural gas to residential and small=20 business customers. According to EnergyGuide.com, for an average home in=20 New York City, SmartEnergy's natural-gas rates typically have run about=20 $189 per month, compared Con Edison's $140. Under its new promotion,=20 SmartEnergy's=20 plan for natural gas guarantees that New York City and Westchester gas=20 customers who sign on with their service now will be locked into current=20 natural-gas rates for the next 12 months. This promotion comes at an ideal= =20 time for those who opt to switch, as natural-gas prices should begin their= =20 projected sharp increase over the next few weeks. Based on recent forecasts= ,=20 SmartEnergy is claiming that Con Edison customers who make the switch can= =20 expect to save up to 40 percent on their energy through the winter months.= =20 The start-up company also is offering 500 United Airlines Mileage Plus=20 Reward Miles credit and $25 sign-up bonus to entice customers away from=20 Con Edison.=20 Based on the available information about SmartEnergy, it is unclear how=20 the online provider will be able to guarantee the 40-percent reduction=20 in natural-gas rates. I would presume that SmartEnergy has entered into=20 some hedging strategies to minimize its risk in the event that natural-gas= =20 prices remain high into the next year. Any prudent provider would have=20 a hedging strategy to protect itself, and locking itself into 12-month=20 contracts without its own contracts for obtaining natural gas at spot marke= t=20 prices would certainly raise questions about the future of SmartEnergy.=20 In addition, SmartEnergy will have difficulty in recruiting customers away= =20 from Con Edison and other utility providers. Many customers still have=20 reservations about signing on with an online company that they do not know.= =20 There will be some customers who jump at the chance to lock in current=20 rates for 12 months, but many others will stick with the company that they= =20 know even if their rates increase. I did a quick search around Con Edison's Website to see if it might be=20 offering an alternative offer to retain its customers, but could find nothi= ng=20 that the utility is doing to specifically address the projected increase=20 in natural-gas prices this winter. Con Edison does offer a level billing=20 program in which customers receive a consistent bill amount each month,=20 alleviating fluctuation in their bills. Yet, as a utility company, Con=20 Edison has a standard offer of service that regulators closely monitor.=20 It is possible that Con Edison could request changes to the standard offer= =20 service, which would likely need to be approved by the New York Public=20 Service Commission. The PSC could agree, or determine that the competitive= =20 offers by providers such as Smart Energy are a positive result of=20 deregulation.=20 In addition, Con Edison could be hampered by fuel contracts that may not=20 allow it much flexibility with regard to lowering its rates. Overall, Con= =20 Edison probably does not have a lot of flexibility regarding the rates=20 it can charge customers, thereby making this offer from SmartEnergy difficu= lt=20 to beat. The other online start-up taking advantage of natural-gas prices is=20 myHomeKey.com,=20 which made a recent promise to reduce home heating, oil, natural-gas, and= =20 electricity rates. The marketing route that this online start-up is taking= =20 is energy efficiency=01*teaching households how to more effectively use the= ir=20 energy and, hopefully, save money as a result. Energy is not the only servi= ce=20 of the myHomeKey.com; it is also involved in home maintenance and repair,= =20 appliances, home monitoring and moving services. Yet, I learned that=20 myHomeKey.com=20 just recently launched co-branded sites with KeySpan Corp. and TXU Energy= =20 Services to "provide millions of local customers" with the ability to check= =20 energy efficiency in their homes. What's important to note about these two developments is the advantage=20 that online energy providers have over traditional utilities. As utilities= =20 try to disengage themselves from regulatory-bound rate structures, online= =20 companies have the freedom and flexibility to offer attractive products=20 and billing options to customers in deregulated states. There are the onlin= e=20 providers that we know about, such as Utility.com and Essential.com.=20 Utility.com=20 has not yet started to sell natural gas, although it has established a=20 partnership with Sempra Energy in which Sempra Energy Trading will sell=20 natural gas in deregulated markets via the Utility.com Web site. Utility.co= m=20 plans to start selling natural gas by the end of this year, but it has=20 not developed any marketing campaign in this regard. Essential.com continue= s=20 to open up its service across the Mid-Atlantic and Northeast regions. Yet,= =20 on a weekly basis, new start-up online energy providers surface, eager=20 to grab their own share of the retail market.=20 I also wonder where The New Power Company is in all of this rush to=20 capitalize=20 on the marketing opportunities surrounding the rise in natural-gas prices.= =20 It would seem like a natural for TNPC to make a big splash with its own=20 marketing efforts, as it already promises lower prices for both natural=20 gas and electricity. In any event, as the natural-gas shortage may become= =20 a public relations nightmare for utility companies across the country,=20 it conversely could work to the advantage of the more agile online provider= s =3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D= =3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D= =3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D Read about SCIENTECH's new PowerHitter interview with Jeff Sterba, Chairman= =20 and CEO of the Public Service Company of New Mexico at:=20 http://www.consultrci.com=20 =3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D= =3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D= =3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D SCIENTECH is pleased to provide you with your free, daily IssueAlert. Let= =20 us know if we can help you with in-depth analyses or any other SCIENTECH=20 information products including e-commerce and telecom in the electric utili= ty=20 industry. If you would like to refer a colleague to receive our free, daily= =20 IssueAlerts, please reply to this email and include their full name and=20 email address or register directly at: http://www.consultrci.com/web/infostore.nsf/Products/IssueAlert Sincerely, Will McNamara Director, Electric Industry Analysis wmcnamara@scientech.com =3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D= =3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D= =3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D Feedback regarding SCIENTECH's IssueAlert should be sent to=20 wmcnamara@scientech.com =3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D= =3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D= =3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D SCIENTECH's IssueAlerts are compiled based on independent analysis by=20 SCIENTECH=20 consultants. The opinions expressed in SCIENTECH's IssueAlerts are not=20 intended to predict financial performance of companies discussed or to=20 be the basis for investment decisions of any kind. SCIENTECH's sole purpos= e=20 in publishing its IssueAlerts is to offer an independent perspective=20 regarding=20 the key events occurring in the energy industry, based on its long-standing= =20 reputation as an expert on energy and telecommunications issues. Copyright 2000. SCIENTECH, Inc. If you do not wish to receive any further IssueAlerts from SCIENTECH, pleas= e=20 reply to this message and in the body of the email type "remove."
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