A new dream team of companies formed yesterday has more thanenough market muscle and expertise to succeed where others havefailed in the retail energy market. Enron Corp., IBM and AmericaOnline have launched an ambitious plan to build a major nationalretail energy company with IBM as back office manager, Enron asenergy supplier, and AOL as the key link to the small customermarketplace.

According to analysts, Enron will have a 60% stake in The NewPower Company, which will be based in Greenwich, CT, with a branchoffice in Houston. The company will get an initial cash investmentfrom sponsors in excess of $120 million. IBM said its investmentwould be in the “single digits in terms of a percentage stake.” GEFinancial Services also reportedly has an 8% stake in the company,according to an equity analyst.

H. Eugene Lockhart, former president of AT&T ConsumerServices, president of Bank America’s Global Retail Bank and formerpresident and CEO of MasterCard International, has been brought onboard as the new company’s CEO. Lockhart has been joined by anumber of high-level executives from the telecommunications andfinancial services sectors, as well as several former Enronexecutives who specialize in energy commodity pricing, marketing,risk management and government regulatory affairs. Lockhart saidthis team of companies and people will make the difference betweenwinning and losing in the retail energy market.

“What we get from each of those players is scale,” he said in aninterview with NGI. “You think about it. Each of these institutionshas put in the distinctive advantage of what they do best. Enronhas put in a commodity master service agreement, which guaranteesus their best wholesale price [for gas and power]. That’s locked inmargin right there. IBM has put in their processing capability sowe get scale advantages from day one, and that is a tremendousadvantage. I will be able to cut a bill for The New Power Companyand collect the money and answer a care service call cheaper than Icould at AT&T on a per-unit basis. Third is AOL; they put intheir distinctive confidence, the Internet, and we’ll be able toacquire and serve customers for a fraction of what it would take ifwe were to do that by more manual means. So that’s where thedifference is.”

With plans to launch in two states, New Jersey and Pennsylvania,in August, the company intends to grow rapidly, crossing 10 morestates by the first quarter of next year, Lockhart said. “We wouldexpect to be in the millions of customers over the next four orfive years,” he said.

While initially selling power and gas to residences and smallbusinesses in deregulated markets, The New Power Company alsoeventually will sell complementary “energy-driven” products, suchas appliances, air conditioners, water heaters and the like,supported by customer service and warranties, Lockhart said, addingthat fuel cells currently are not on the list. “There are a fewother things that are more proven with a higher near-term marginfor us. I’m kind of intrigued by fuel cell technology, but I’d liketo give it a chance to mature.”

Enron will provide the energy commodity pricing, riskmanagement, and government regulatory affairs. “We’ve studied theresidential and small business market for several years and believethis is the optimal way to provide value to these customers,” saidEnron CEO Kenneth Lay. “By assisting in setting up an independentcompany, Enron is able to leverage its core competencies of energyand risk management, while partnering with other industry leadersto give The New Power Company extraordinary and immediate depth andcapability.” Lay will serve on the company’s board.

Lockhart said Enron would be making a large amount of”value-in-kind” investments in the new company. One major componentis a commodity master service agreement, where Enron will guaranteeits best commodity price for the next three years. “We then cantrade against [that] or pass it on and sell to our consumers.”Enron also is providing significant administrative and financialaccounting support as well as licenses for commodity purchasing,trading and risk management software.

The New Power Company also has signed a 10-year, $1.5 billionservice agreement with IBM Global Services, which will build, staffand run core components of its back office functions. IBM also willhelp develop The New Power Company’s e-business strategy anddelivery capability.

“This is a unique opportunity to build a world-class back officeinfrastructure to support The New Power Company’s first moverstrategy,” said Doug Elix, IBM senior vice president and groupexecutive, IBM Global Services. IBM will develop and host thecompany’s web site from its Southbury, CT e-business hosting centerand plans to add another center in Charlotte, NC. It also willprovide billing and revenue management functions.

In addition, IBM will provide systems integration services andnumerous hardware and software products. The new company also willbe using the IBM VeriTRAN Clearinghouse service nationwide, whichprovides a cost effective and streamlined method of communicatingwith customers, other energy providers, meter services providers,billers, and local distribution companies.

For its link to the marketplace, The New Power Company formed astrategic alliance with America Online, Inc. that will give thecompany exclusive rights to provide energy and related servicesacross three America Online, Inc. brands: AOL, CompuServe and AOLDigital City. The six-year agreement will enable users of these AOLbrands to select The New Power Company as their electricity andnatural gas provider in deregulated markets. In addition, userswill be able to receive and pay their bills online.

Merrill Lynch analyst Donato Eassey said he thinks thiscombination will finally be the one that succeeds in thesmall-customer energy markets. “Obviously with top-shelf companieslike AOL, IBM, GE Financial and some other players.” This companyhas the best chance to succeed, he said. “…What package has thebest opportunity for you to reach the most potential customers? AOLbrings that. What software package company would you rather dobusiness with than anybody? Good chance it’s IBM, right? .Whattrading company do I want to align with? On the gas side there areseveral of them, but the two that stand out are Dynegy and Enron.

“I think it’s way too early to predict [the growth of the newcompany],” he said, “but I think it will be substantial. Keep inmind what has happened to retail [e-commerce] on any product sofar. It’s just started to get accepted. But if I can go in and buyclothes and cars or anything online, why can’t I go in there andbuy energy, be it for a day, a month, a year. Keep in mind that as[Enron does] this they are going to build another conduit of marketintelligence on which to trade off of on the wholesale side for[energy] marketing. Again, I think the effective way to do it ison-line, and America Online is a good way to go about it.”

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