Monday March 13 2006


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Fastest growing Canadian firm
has plans for US open markets

Canada's fastest growing company has big eyes on the US market.
       That's the message Energy Savings Income Fund CEO Brennan Mulcahy carried to the KEMA conference.
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        His firm has made a big splash in Canada selling fixed-price, five-year contracts for power and gas (RT, 11/8).
       Energy Savings has expanded into Illinois (gas) and New York (gas and power) and of course doesn't intend to stop there.
       It has plans to enter Indiana this year.
       And Maryland, Michigan, New Jersey, Ohio, Texas and Virginia are on the horizon.
       Mulcahy expects US expansion to be a slow but steady process, Mulcahy added.
       The marketer is going to wait for regulatory regimes to stabilize in many states.
       Energy Savings will go to any state that is truly competitive, Mulcahy promised.
       Energy Savings is a, "young vibrant company for a young vibrant industry," he argued.
       What Mulcahy is really doing is selling insurance against future price spikes.
       And how do you sell life insurance?
       You have to go door to door, Mulcahy explained.
       Most mass-market customers don't understand energy just as they don't understand life insurance.
       That's why Energy Savings sells face to face via direct (push) marketing.
       Energy Savings' sales force has knocked on 3 million doors through the first nine months of this fiscal year.
       Think about that.
       That's roughly 300,000 doors a month or about 10,000 doors a day.
       So far, it's brought in over 300,000 customers through nine months -- ahead of last year's record of 290,000 new customers (RT, 2/9).
       Sales agents give customers a 15-minute presentation, stressing peace of mind and budget certainty.
       Energy Savings doesn't market savings.
       But that doesn't mean customers haven't seen big savings.
       In fact, all of Energy Savings' customers who have completed the full term of their contract have saved money, Mulcahy reported.
       Customers saved an average of $823 over their incumbent utility last year, he added.
       And 95% of the marketer's customers are paying a fixed-price below their utility's floating rate.
       Competitors, Mulcahy observed, try to reach customers through traditional "pull" marketing -- advertising and brand awareness.
       That just doesn't work with a complex product such as power or gas, he argued.
       He's seen utility affiliates and other big retailers -- such as Sunoco -- try to crack Ontario's competitive markets with pull marketing -- and they've failed, Mulcahy noted.
       Business-school textbooks don't teach door-to-door sales, he added, and boards of directors don't like them.
       Energy Savings has a predictable business and its contracts ensure a stable cash flow.
       It buys gas and power fully in advance before selling contracts, eliminating exposure to spot volatility.
       Sales agents are paid 100% commission.
       That means Energy Savings' customer acquisition costs are 100% variable -- letting customers get the lowest possible price.
       Energy Savings can sign a gas customer for just $160, Mulcahy revealed.
       The cost is over $400 for competitors using direct mail, radio, print and internet ads, he said.
       Conventional marketing boosts customer prices 10% over five years, Mulcahy argued.
       Most US retailers have a mindset of beating the utility's rate, he observed.
       For Mulcahy, that short-term focus hinders product innovation and real choice.
       But it's tough for many small US marketers to offer a five-year fixed plan, he conceded.
       They just don't have the capital.
       It takes a big balance sheet to finance the deals and he doesn't think many boutique marketers can bankroll them -- resulting in fixed-price plans that last only two years or so.
       What about the long-term outlook for gas supply?
       Mulcahy shares stakeholders' concerns about the tightness between supply and demand.
       The market has seen the impact in higher prices.
       He worries about sustained high prices in the long term especially if future winters aren't as mild as this year's.
       It just makes a product offering that gives customers predictability and stability a winner, Mulcahy added.
       Originally published in Restructuring Today on March 10, 2006

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CONFERENCE LINKS

GCPA's FutureGen*erations - New Pieces to the Puzzle
 When: 04/05/06 - 04/06/06
Where: The Woodlands Waterway Marriott
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