Enron, America Online, IBM team up for residential utility venture

Foiled by the California and Oregon consumer electricity markets, Enron Corp., in partnership with IBM and American Online, is plunging into the New Jersey and Pennsylvania markets. The closely-watched venture will market power and natural gas over the internet and through conventional means and be named the New Power Co. Pennsylvania deregulated its power market this year, while New Jersey's market is still undergoing deregulation.


Karen Broyles
OGJ Online

Foiled by the California and Oregon consumer electricity markets, Enron Corp., in partnership with IBM and American Online, is plunging into the New Jersey and Pennsylvania markets. The closely-watched venture will market power and natural gas over the internet and through conventional means and be named the New Power Co. Pennsylvania deregulated its power market this year, while New Jersey's market is still undergoing deregulation.

The new venture points up the continuing challenges in serving the retail market. Industry observers say offering the service through AOL could save New Power money on independent agents who typically charge between $25 and $50 per new customer and on bulk mailing charges. AOL's large membership base also offers a substantial number of potential customers for The New Power Co.

At the same time, New Jersey requires "wet signatures," so-called because the customer must sign his or her name in ink before being transferred to a new marketer. Industry sources say that's one hurdle facing would-be residential marketers in New Jersey, who can't sign people up over the telephone or internet.

The agreement will allow users of AOL, CompuServe, and AOL Digital City to select The New Power Co. as their electricity and natural gas utility provider. Customers also would be able to pay their gas and electric bills to The New Power Co. online.

Enron will be making money with an agreement to sell power and gas to the company, which will then resell the products to consumers. Enron will also provide The New Power Company with commodity pricing, risk management, and government and regulatory affairs assistance. IBM will build the infrastructure which is scheduled for completion by late summer. The new company also has signed a 10-year agreement with IBM Global Services to build, staff and run "back-office" functions, such as maintaining the site. IBM also will help develop the firm's e-business strategy and delivery capability. An initial $120 million investment of capital is being made into The New Power Co.

A spokesman for The New Power Co. said they aren't disclosing the percentage interests held by the investors. Other investors besides the main three include General Electric Corp.; Donaldson Lufkin & Jenrette; and the California and Ontario, Canada, teachers' pension funds.

After a launch in New Jersey and Pennsylvania, the company expects to expand into other deregulated markets. Currently, 22 states have either deregulated their electricity markets or will do so in the next few years. The New Power Co. plans to add 8 to 10 new markets in 2001, but the spokesman declined to disclose specific states. Potential markets include any of the states currently undergoing deregulation.

While initially offering energy to residences and small businesses in deregulated markets, The New Power Co. also will eventually sell other complementary products, including energy audits and security systems for homes and small businesses. "We also plan to offer best-in-class, nationally-recognized products and services from an extensive array of partners to support homeowners and small businesses," said H. Eugene Lockhart, CEO of the new company. Lockhart formerly served as president of AT&T Consumer Services and chief marketing officer of AT&T, and also was president of Bank America's global retail bank and president and CEO of MasterCard International.

"We've studied the residential and small business market for several years and believe this is the optimal way to provide value to these customers," said Enron Chairman Kenneth Lay. The New Power Co. will be headquartered in Greenwich, Conn., with some operations based in Houston.

Customer choice
What will determine the success of the venture, sources said, is how ripe the residential markets of Pennsylvania and New Jersey are for an online service of customer choice. The key question is, What kind of price will the company have to offer to get customers to switch while still being able to make money?

Over the past 3 years, Enron has backed away from previous attempts to enter the residential power markets in California and Oregon, industry sources say. But they point to the advantages of teaming up with companies such as AOL and IBM that are experts in their fields, plus the addition of a company CEO who has experience in retail customer markets. The combination could improve the venture's chances of success, experts say.

More residential customers appear to be switching gas and power providers in Pennsylvania compared with New Jersey. So far, GreenMountain.com, South Burlington, Vt., has been the most successful in the retail residential market. GreenMountain currently markets "green" and clean gas and power to consumer markets in California, Pennsylvania, and New Jersey. The company is involved in promoting cleaner electricity and in policy work on environmental issues. Earlier this month, BP Amoco PLC announced it was buying an initial 18.5% stake in GreenMountain.

Other companies besides Enron have tried to enter the foray, including UtiliCorp United. In 1995, UtiliCorp launched EnergyOne, the US utility industry's first national brand. The idea was to enter deregulated markets anywhere in the US and offer gas and electricity services to residential, wholesale, commercial, and industrial customers. After working on the EnergyOne venture for several years, however, UtiliCorp determined that the approach wasn't going to be profitable. EnergyOne currently operates seven utilities, mostly in the Midwest.

"One of the benefits of competition is encouraging new ideas and new products," says Ray Palmer with Austin-based New Energy Ventures. Internet marketing, in some cases, has proven to be successful in residential markets, which could increase the venture's chances. And sources say Enron wouldn't have gotten a company like IBM involved if they didn't plan on making a substantial effort.

But other industry observers say a national framework for deregulation is what's needed to ensure companies can be successful in markets that are opening up. Without a national standard for deregulation in each state, sources say, a company trying to enter the residential market on a national level might find the individual rates and rules in each state too cumbersome to ensure commercial viability.

While Pennsylvania is further along in its deregulation than New Jersey and others, one source said a provision that allows customers to switch their provider at any time, in one instance, prompted some companies to back off from becoming suppliers in that state.

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