CEO, Utility.com, USA
The Internet age and energy deregulation is bringing a new breed of utility – the dot coms. One such company – Utility.com – is aiming to increase its customer base twenty-fold over the next year via its award-winning website. PEi looks at its Web strategy.
The Internet Age has arrived, and every day it is changing the way we do business. From the purchase of airline tickets to the purchase of books, the Internet has affected industries far and wide, and the $500 billion utility industry is no different.
Figure 1. CyberStat enables consumers tocontrol their energy use on-line
At the same time, electric and gas deregulation is also occurring in America. But what do these two events – milestones in themselves – have to do with one another? The conclusion was simple: this was a chance to sell energy on the World Wide Web. The result: Utility.com, Inc., a privately held company founded in 1998 by experts in the energy and Internet industries, including, idealab!, the innovator behind such companies as eToys.com, GoTo.com, PETsMART.com and CitySearch.
Within five months, the company had been incorporated. Four months later, it was selling power throughout California; and seven months later, Andersen Consulting named the Utility.com website the “Best-Performing Utility Web Site in the World” (see PEi January/February 2000). The company is registered with the public utility commissions of Massachusetts and Nevada and plans to provide service to approximately 23 states and the District of Columbia by the end of 2001.
Figure 2. CyberStat user interface
The speed with which an idea can move to reality, and then for its success to so quickly be recognized, is made possible primarily because of how the Internet has changed the way global businesses can do business. And, in the case of Utility.com, this speed-to-market and rapid success is possible because of this ‘Internet Age’, but is also realised in large part because of the deregulation of the energy industry.
Driving the increasing efforts toward competition have been the goals of increased efficiency and lower costs. The electric utility industry, even with the advances in wholesale competition, is the least efficient major industry in the country, utilizing its plants just 46 per cent of the time on average. The only method for improving this is to extend competition from the wholesale market to the retail market, where consumers force utility companies to lower their costs and become more efficient. In competitive markets, consumers can force greater efficiency by switching, or threatening to switch, suppliers unless costs are reduced and by reducing on-peak usage in response to price signals – a key reason Utility.com is the first competitive energy supplier to offer time-of-use rates to mass market customers.
Figure 3. Utility.com energy savings comparison chart
Thus throughout the 1990s, state legislatures and regulatory commissions began requiring utilities to allow competitors to enter their markets. The first such states were Pennsylvania, California, Massachusetts and Rhode Island. Other states have followed.
To date, 24 states, representing two-thirds of the nation’s population, have agreed to deregulate their electricity industries: Arkansas, Arizona, California, Connecticut, Delaware, Illinois, Maine, Maryland, Massachusetts, Michigan, Montana, Nevada, New Hampshire, New Jersey, New Mexico, New York, Ohio, Oklahoma, Oregon, Pennsylvania, Rhode Island, Texas, Vermont and Virginia.
Competition within the utility industry allows consumers to shop around for the lowest rates and the best service. In a competitive marketplace, consumers should also expect better customer service and state-of-the-art technology to help them save money on their energy bills. An example of this is Utility.com’s CyberStat, an Internet-programmed and Internet-controlled thermostat for homes and small businesses. According to
Alan Greenspan’s US Federal Reserve, efficiencies and innovations – such as the CyberStat – mean that energy deregulation and the Internet should deliver savings of more than $40 billion per year to US consumers.
Setting the pace
The deregulation of the energy industry has created a new category of retail energy companies in America: These companies purchase wholesale energy and sell it directly to consumers in competition with the regulated monopoly utilities. These companies can operate as traditional, brick-and-mortar companies, or, like Utility.com, they can take advantage of the other trend crossing America: the proliferation of e-commerce on the World Wide Web.
Utility.com, a San Francisco Bay Area-based retailer of energy and other utility services, is the first Internet utility company. Utility.com is a state-licensed retailer, purchasing energy direct from wholesalers and selling it to customers who sign up for energy service via the Internet. Consumers in states where the energy industry has been deregulated now have a choice in energy providers for the first time in history combined with the convenience of online energy management and billing. Utility.com currently has licenses to provide service in four states: California, Pennsylvania, Massachusetts and Nevada, with several others pending. The company now sells electricity throughout California and Pennsylvania as well as Internet service provider (ISP) access in 48 states, a key part of the company’s vision of one-stop Internet shopping, service and billing for a wide variety of utility services.
Utility.com sells energy to consumers in deregulated markets and negotiates volume discounts with the wholesale energy providers, passing on these savings to its customers. But Utility.com takes the retail energy model one step further: as the first Internet-based retail energy company, Utility.com operates wholly online, significantly reducing its operating costs, and provides additional value-added services – beyond energy – to consumers in one, bundled electronic bill.
Utility.com guarantees energy cost savings for its customers. By selecting Utility.com, consumers save money on their energy bills and take advantage of managing their electricity account online. Through the use of the Internet and its tremendous efficiencies, Utility.com customers sign up for energy and Internet services online, choose their billing date and method of payment (debit or credit card), track and manage their energy use online, and even direct the company’s charitable donations. Customers cite as one of their favourite features the ability to view historical usage and bills online, allowing them to rid themselves of paper files full of prior utility bills.
In addition to offering significant energy savings in deregulated markets, Utility.com will offer other useful services nationwide including telephony and Internet access services as well as offline services related to electricity, thermostats and appliances.
Electric competition in today’s Internet era has accelerated the development of home automation products and services. One of the most advanced home automation products on the market is CyberStat, an Internet-controlled thermostat developed and to be sold by Utility.com that enables consumers nationwide to program the heat and air conditioning in their home or small business via the Internet. Heating and air conditioning (HVAC) systems are the major energy-using equipment in the home, typically accounting for 44 per cent of energy use. According to the US Department of Energy, properly programmed thermostats can save ten per cent of the combined gas and electric usage in the home. The simplicity and low cost of CyberStat mean that there is now a home-automation product that makes immediate economic sense.
This innovation replaces the typical home or small business thermostat with a CyberStat unit that includes a wireless paging receiver. Like traditional thermostats, the CyberStat can be controlled manually, but it can also be controlled remotely. The home or small business owner can send CyberStat commands via the Utility.com website (a wireless paging receiver in the unit receives the signals) to control heating and air conditioning systems.
The CyberStat stores a seven-day programme, in which each day may be different. CyberStat will also recognise ‘holidays’ – providing comfort at home on what are normally workdays – and ‘vacation days’, which are defined to default to maximum energy savings. With CyberStat, website programming replaces the specialized buttons of traditional thermostats with the user-friendly point-and-click convenience of the Web. Moreover, CyberStat can be programmed to automatically reduce load during high-priced peak hours to result in additional consumer savings.
If a consumer with CyberStat neglects to turn off the heat when leaving the house, he or she can have the flexibility to do so from the office via the Internet. Similarly, a consumer with CyberStat can turn on the air conditioning remotely when he or she is an hour from home after an extended vacation.
A new place of business
Because CyberStat is a thermostat and does not involve the resale of any energy, Utility.com can offer CyberStat nationwide, not just in deregulated markets, via its website. In October 1999 Andersen Consulting named the Utility.com website the ‘Best-Performing Utility Web Site in the World’, praising its range of interactivity, quality of content and responsiveness.
With offerings for electricity service in deregulated markets, Internet service provider (ISP) access nationwide and other innovative, convenient consumer services, Utility.com’s website outperformed other energy websites by more than nine times on key functionality measures. Criteria included quality of content, ability to conduct transactions, range of interactivity and usefulness of content to key stakeholders.
During the course of the month, customers can conduct general account management functions such as changing service plans, obtaining real-time pricing data and monitoring hourly energy consumption. Customers can have their energy bill directly debited from their bank account or charged to a credit card, which may have an affinity programme allowing them to gain points, frequent flier miles or cash back. Additionally, customers can choose the date on which they would like to be billed each month. Utility.com will also provide customers with an online customized analysis of their appliances as related to energy cost savings.
Over the long term in the energy service provider (ESP) industry, customer acquisition, retention and service will differentiate the mere players from the real winners. As the first Internet ESP, Utility.com is positioned well to grow its customer base 20 times this year and become a billion-dollar company.
While the pace of deregulation nationwide limits the potential customer base for energy services in the near term, the Internet provides limitless opportunities to introduce additional services like CyberStat and ISP to consumers nationwide.
Utility.com plans to focus on educating consumers nationwide, especially in deregulated markets, that they now have a choice for energy purchases, other than their old monopoly. Utility.com provides customers with choice, thanks to deregulation; and control, thanks to the convenience of the Internet.