Online Utility to Sell Power at a Discount

Hi there. It’s Friday, October 11th, and you’re listening to WindFront, the weekly round up of the wind industry from Australia and around the world. Today I’m going to talk about a brand new online utility to sell power at a discount, and I’m going to round up top 3 earners in wind.

Move over incumbent retailers. There’s a new electricity retailer in town. One that is offering up to 20% cheaper electricity because it’s run from the internet. This company comes with some serious credentials. They’ve raised over $52 million in funding. They were voted the world’s best utility website in the world, and they’ve partnered with ideaslab and PetSmart.com, and other big names.

Today, I’m going to look at the rise and fall of utility.com, an online electricity retailer in several US-based deregulated markets like California, Nevada, Pennsylvania, and New York. Utility.com began in 1999, and it was during the heights of the dot-com era boom. And its business model was pretty simple. Enter a deregulated market and sell product at a lower rate than the incumbent retailer. They sold everything from internet, telephone, gas, and electricity. And at the time, they were selling electricity for about 20% less than existing market rates. Their appearance in New York made the New York Times, who had quotes from experts saying that making money would be difficult because the margins were so slim on electricity, and the company would be able to provide the average consumer with only about a $3 to $5 monthly saving.

The catchphrase is putting the $500 billion electricity industry online, $500 billion electricity industry online. Initially things went well. After their initial fundraising, they raised $30 million in April 2000. The money was to broaden utility.com services worldwide. So at this point, they’d already expanded to 5 states in the USA, and despite the cheaper offering, they still needed to direct the cash directly into marketing at those states that they were already present in. Sort of indicates that it wasn’t as easy to sustain growth once they’d already got their initial round of customers based on price alone.

It was around this time in May and June 2000, that the Californian Energy Crisis began. Pool prices for electricity rose significantly and there was a huge heat wave over June, which caused widespread blackouts. In the midst of this, utility.com announced their powerful tips for keeping power outages at bay. There were gems like raising the air conditioning thermostat, switching off unused lights and machinery, and the old chestnut, leaving the house and going to the shops. Most of these are aimed at their consumers shaving off the peak usage, and so that reduced utility.com’s exposure at times of peak pricing.

By October 2000, the wheels are already falling off the energy business. They’d change their focus. Instead of selling power to mums and dads. They were selling their electricity retail software, which they used to power their own business to other power companies. At this point in November 2000, they raised another $22 million to expand and shift their focus to selling software to other power companies. No longer burdened with selling discount electricity to consumers, this was seen as a way to avoid certain disaster.

The crisis in California, driven by Enron was deepening. Other electricity companies folded, and utility.com stopped accepting new customers. But it was all too late. In early 2001, they exited the market altogether and released the customers back to their default retailers. Court rulings found that they owed significant sums of money to their old customers. During their peak utility.com had about 130 employees and over 50,000 electricity customers. But at the end, only 15 remain, including Chris King, the founder and CEO who now runs a division of Siemens.

Was utility.com becoming a victim of the Californian Energy Crisis the only possible outcome? They certainly were exceptional circumstances to operate a business, coupled with the difficulty they would have had in raising further capital and declining post-boom market.

Okay, so the top wind farms this week, Macarthur, at $1.3 million, Waubra, up there with $750,000 and Musselroe, rounding it out with half a million dollars. I’ll catch up with you again next week and until I do, keep buying those green electrons.