Bright Lights, Big Opportunity
Last summer, when Idealab founder Bill Gross got together with his former high school classmate Chris King, a lightbulb switched on. The utility industry in California had recently been deregulated, allowing consumers to choose their own electricity provider, and Gross, whose Idealab incubator has gestated such Internet powerhouses as eToys and CitySearch, wanted to start a company that would sell electricity on-line. King was then vice-president of regulatory affairs at CellNet Data Systems Inc., which had developed an electrical meter with a wireless CellNet-supplied radio inside to transmit hour-by-hour data about a customer's energy usage.
Putting the two ideas together, Gross and King came up with Utility.com, the first Internet electric company. Powering the start-up, based in Albany, Calif., is $6 million raised in two rounds of financing from a group of venture-capital funds, among them Gross's Idealab Capital Partners.
Utility.com began selling electricity to California users in March, with plans to do business in at least two other deregulated states by the end of the year. Unlike most traditional utility companies, Utility.com doesn't generate its own electricity but buys much of its power from electricity wholesalers at off-peak rates and contracts with local utilities to deliver it over existing wires to customers who have signed up on the Utility.com Web site.
For customers, Utility.com means savings of up to 10% off their old electricity rates, plus a slew of options. With a special wireless thermostat, customers will be able to set the temperature in their house over the Internet before heading home from work. They can choose to buy all "green" power--generated by wind, solar, geothermal, or biomass plants--for no extra charge. They can also check their electricity usage on-line at Utility.com's Web site, using their own password, and get advice on how to adjust their usage to save money. They can even pick their own billing date.
But will customers be turned on? Hard to tell. A recent survey by the Yankee Group found that after deregulation in 1998, only 3% of California customers switched to an independent electricity provider. Worse, 60% of that group switched back to their original utility, probably because of computer glitches and other customer-service problems, says the Yankee Group's Elizabeth Moore. "I think it's going to be a great challenge [ for Utility.com] to hang in there until the market catches up to them," says Moore.
Utility.com is currently conducting an advertising campaign to expand its business beyond its customer base of fewer than 10,000 by the end of the year, with revenues projected to grow to $5 million a month, King says. With retail sales of electricity and gas totaling some $300 billion a year, he notes, even a very small piece of the market can generate a lot of heat. "To be honest, our business plan calls for less than one-half of a percent [ of the market] , and it's still a billion-dollar company," he says.
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