In May, US company UtiliMAX Inc. announced startup of operations as the ‘first global, Internet-enabled provider of bundled low cost electricity and telecommunications services exclusively for the business community”. Junior Isles finds out more.
James Fruehling, CEO and president of UtiliMAX, Inc., has a good pedigree: “I came out of a utility family. My mother worked for Con Edison in New York, I worked for Boston Edison up in Boston, my father was chief financial officer at GPU and my brother still works for PSE&G.”
With this kind of background, it is hardly surprising that he should be the man heading up what is claimed to be the first Internet-enabled provider of bundled low cost electricity and telecommunications services exclusively for the business community.
“The difference between us and power retailers,” said Fruehling, “is that our bundled product guarantees our customers unprecedented savings. We select customers with past usage profiles that make the most financial sense to both UtiliMAX and its business customers.”
By purchasing for commercial clients and businesses, and not residential markets, UtiliMAX says it gains better pricing with significant margins than industry standards. The company is positioning itself to become the largest business-to-business provider of bundled electricity and telecommunications services in the United States.
Room for margin
Fruehling had been studying the deregulation of the US electricity market and how UtiliMAX could position itself in the industry. “We looked at the Californian model and didn’t like it. But we did like the Pennsylvania model, and looked at what potential customers would want.
“We did not want to go anywhere near the residential market because there are no margins there at all. Customer acquisitions call for three times the yearly net on a residential household. Projections of becoming profitable in this market is usually four to five years – not the kind of business plan we were interested in.”
The company turned its attention to the business-to-business (B2B) market and saw that “there was an extremely small margin to be made there from day one”. In the electricity market, these margins stem from the possibility of controlling risks in a market which has seen wild fluctuations in power prices. Fruehling explained: “We decided we could set up as a B2B wholesaler, mark-up a couple of points, and wrap this up with the telecomms aspects.”
Most of the company’s clients are hotels and commercial buildings. It does very little in the industrial sector. Clients seem to have responded well to the UtiliMAX approach. This would see it for example, take a bank and pull together all of the electricity and telecomms bills from its multiple branches.
Already UtiliMAX has built up an impressive client base in Pennsylvania, its first state of operation. UtiliMAX also will become a licensed utility and telecom provider in New Jersey, New York and California within months despite the challenge of getting state licenses. “It took us many months to obtain a New York license and really we are only part of the way there because we also need ISO membership.”
Nevertheless, the company believes its expansion will continue as other states deregulate and has plans for operations in ten states by year’s end. The company is seeking licenses in order of deregulation in Delaware, Illinois, Virginia, Maryland and in Texas and Florida for telecommunications. By year-end 2001, UtiliMAX intends to be licensed in 18 additional states.
Since obtaining its Pennsylvania license on March 2, 2000, its sales have averaged $1 million a week. But the company stresses that it is not in Internet sales as such, but more in Internet handling. “This is what you want to use for customer service – as your backbone. We are not an Amazon.com. This not where you are going to spend $20 on a book. This is a million dollar purchase. It’s not the kind of thing you do online. You will receive a lot of information from us on line and you will be able to apply online, but everyone of our customers is assigned an individual sales representative and is handled on a one-to-one basis.”
A hectic summer
As summer approaches things are becoming busy for UtiliMAX. Due to price volatility during the summer, there are little electricity sales from wholesalers. In early May, spot prices went up to about $421/kWh for two or three hours. The usual trading price for the rest of the year is about $25-30/kWh.
There has also been a PUC ruling in Pennsylvania that if an organisation does not pick a service provider by May 31st, it will fall back into what is called a PLR, a Pool of Last Resort. It would then be stuck with this provider for 12 months. The aim of the ruling is to stop organisations from going to the local carrier for the summer months i.e. June, July and August when prices are likely to peak, and then moving to cheaper suppliers for the rest of the year.
“We have a lot of clients that are now in a panic because no one is selling them electricity because the power prices are just too erratic. So a lot of them are coming to us saying: “I need stability. I need to be able to budget on energy cost”.” UtiliMAX also has a partnership with one of the top five telecomms companies in the US which according to the company allows it to beat its competitors’ telecomms rates as well. “So when we go in, we discuss their power needs together with their telecomms needs,”added Fruehling.
UtiliMAX sees this type of customer focussed approach combined with the efficiency of operations as paramount in a market which has become price driven. “Our clients are receiving a higher level of service than they have ever received from the traditional utility companies. These utilities never really cared about their clients or never even really knew who their clients were. Most of the energy companies today, with a few exceptions, like Enron, cannot categorise their customers. They are seen as just a meter number.”
UtiliMAX argues that using the Internet allows clients to be categorised which in turn allows them to “value add” services easily.
Getting the client
Typically, UtiliMAX would initiate contact with potential clients. The company would then visit the site to obtain a client profile and find out their needs in both energy and telecomms.
The client’s energy profile would be run through UtiliMAX’s systems to generate a price or package of prices. This would normally take a day or two, after which a price would then be proposed. According to UtiliMAX, a 10-15 per cent saving is usually achieved.
The savings for telecomms are usually higher than for energy. “There is no way you can save the big energy users 10 per cent. We have one client who has an energy spend of $8 million a year – it’s very hard to save him 10 per cent. The margins are not out there in the wholesale or generation markets. When they are that big a user, they already tend towards a unity load. It’s very hard to mix and match his load so precisely that we are going to save him a whole lot of client who had an energy spend of about $6 million per year,” said Fruehling. “On the telecomms side, for a big bank that runs a 24-hour call centre the saving is more than 10 per cent,” he added.money. We saved about five per cent for a client who had an energy spend of about $6 million per year,” said Fruehling. “On the telecomms side, for a big bank that runs a 24-hour call centre the saving is more than 10 per cent,” he added.
UtiliMAX usually signs up clients for one year contracts for both energy and telecomms, although the telecomms contracts tend to be longer (two or three years). The shorter electricity contract is due to the volatility of power prices. Fruehling thinks that the length of electricity contracts may become longer in the future. “With the way the market is looking, I think longer term contracts would benefit our clients. We see energy prices climbing in the next few years even though many of the experts originally predicted they would fall in two or three years. We are seeing the reverse of this. Futures prices in the PJM area for July are significantly higher than the futures prices a few months ago,” noted Fruehling.
Once the contract was signed, the client’s energy and telecomms usage would then be switched over to UtiliMAX through its back office. Its bills would then be put on the UtiliMAX website, and it would be given a password to view its account either at the local or national level.
Clients can make use of an Account Management system which allows them to download UtiliMAX bills into their internal accounts payable system; review bills in various formats; pay bills and store billing information for future reference.
There is a bill auditing system which allows clients to track expenses in a detailed manner; gain a better understanding of usage patterns for each product or service; create accurate forecasts and budgets.
UtiliMAX also provides a Universal Customer Gateway which allows its clients to take care of all of its customer services needs. It allows UtiliMAX to interact with its clients. Citing the benefits, Fruehling said: “What you often encounter, especially in telecomms, are requests for bill auditing. There was always a problem with telecomms bills. We can run automatic bill auditing programmes, we can schedule audits for them through this gateway.”
The Gateway also allows clients to keep abreast of upgrades within its organisations. Fruehling cites the hotel example which has multiple sites.
UtiliMAX runs its system on a Windows NT platform and works in an XML format. It receives data streams containing the meter information from the local distribution company in an EDI transfer. All telecomms billing information is received in an HTML stream. “It’s very easy for us to manage the data from all of our clients,” noted Fruehling.
After only ten weeks of business, the company’s sales have reportedly totalled more than $8.6 million. According to Fruehling, is on track with his expectations to generate $200 million in sales by 4Q 2001. “We are exceeding our year 2000 goal of a 75 per cent monthly growth rate in target revenue. Because of this growth, we are seeking second round financing to support costs associated with aggressive marketing, and state licensing and bonding campaigns. We need the funding to support our rapid growth.”
UtiliMAX has so far signed up about 100 accounts and will soon be announcing two big sales. One is a $40 million, three-year forward sale for a multi-state client. It is also in negotiations with a Fortune 500 company for a nearly $80 million sale.
With such a rapid expansion plans there have been questions asked as to whether the company’s technology will be able to manage the resulting volumes of data. But this is not something which concerns UtiliMAX. Fruehling said: “Other companies have seen their systems collapse when they hit 50000 people. We are dealing with million dollar commercial bills – not $400-500 household bills. So we are not really worried about scalability issues yet. If we had 50000 people, our sales would be in the billions of dollars. I think we would super-capitalized enough to pull through!” No doubt.
James Fruehling: We saved about five per cent for a client with an energy use of about $6 million per year. Clients can make use of an Account Management system.
Big business: The company expects to generate $200 million in sales by 4Q 2001.