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SCIENTECH IssueAlert, November 14, 2000
SmartEnergy Rounds Up $15 million in Financing; Is an IPO in the Works?
By: Will McNamara, Director, Electric Industry Analysis
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SmartEnergy announced that it had completed its Series A round of financing,
having received funding from an investor group including strategic utilities,
venture capital and global banks. SmartEnergy, a privately held Internet-based
energy service provider active in New York, plans to use the funding as
working capital to "rapidly ramp up to meet an aggressive deployment 
schedule."

ANALYSIS: You may recall that I discussed SmartEnergy about a month ago
(IssueAlert, Oct. 11), when I drew attention to the fact that the online
start-up was taking customers away from ConEdison. In existence only since
April 1999, SmartEnergy offers electricity and natural gas to residential
and small business customers. Under a promotion currently under way in
New York, SmartEnergy has guaranteed savings of up to 40 percent on energy
through the winter months for natural-gas customers in the boroughs of
New York City and Westchester County. Capitalizing on ongoing threats about
low supplies of oil and natural gas, SmartEnergy is using the so-called
"energy crisis" to lure customers away from the traditional utility by
locking in current natural-gas rates over the course of the next 12 months
under its "Smart Fixed Rate" plan. As a policy, SmartEnergy hedges the
products that its sell to customers, so that neither the company nor its
customers is exposed to energy market price risks. In addition, SmartEnergy
has offered 500 United Airlines Mileage Plus Reward Miles as an enticement
to secure customers.

As I discussed last month, an advantage that online energy providers such
as SmartEnergy have over traditional utilities is their agility. As utilities
try to disengage themselves from regulatory-bound rate structures, online
companies have the freedom and flexibility to offer attractive products
and billing options to customers. In addition, operating online allows
SmartEnergy to easily operate in geographically disparate markets. Up until
now, SmartEnergy's marketing efforts have been concentrated in New York
state. However, the company claims that it will be serving six states,
including New Jersey and Pennsylvania, by the end of this year. SmartEnergy
expects to be serving all 25 deregulated states by the end of 2001, and
the financing that it has received from investors undoubtedly will support
this anticipated growth.

Venture capitalists apparently agree that a company like SmartEnergy offers
a unique business model that could potentially lead to financial returns
as the energy industry continues to become deregulated. Investors that
are bankrolling SmartEnergy include Alliant Energy, WPS Resources Corporation,
Avian Securities and several other unidentified private investors. In 
addition,
there is a European contingent that is part of the Series A round, including
Dexia Ventures, the private equity arm of Dexia Bank, a USD $211 billion
asset bank based in Belgium; KBC Bank; and venture capitalist groups Trust
Capital, Proseed Capital Holdings and Technoledge Ventures. The inclusion
of both American and European investors is important. Coupled with 
SmartEnergy's
intention to operate in all 25 U.S. states that are deregulating, the fact
that the company also has European investors suggests that SmartEnergy
plans to be an energy provider on both sides of the Atlantic. The fact
that SmartEnergy operates completely online lends itself to a platform
of worldwide service. In fact, Alliant Energy identified "the strong growth
of the Internet and technology in the energy segment" as a key reason why
it is financially supporting the growth of SmartEnergy.

In fact, the alliance between SmartEnergy and Madison, Wis.-based Alliant
has been in existence for several months. The utility's non-regulated 
subsidiary
Alliant Energy Resources formed a strategic partnership with SmartEnergy
to expand a decidedly e-focused business. The partnership with SmartEnergy
represents Alliant's new drive to forge strategic alliances with companies
offering state-of-the-art technology and new products and services for
customers. In fact, Alliant has referred to SmartEnergy as "the energy
company of today and tomorrow" and believes that it has a platform that
can be replicated for fast growth in markets around the world.

Of course, my question is whether or not we are seeing the wheels turn
toward an imminent IPO from SmartEnergy. It would certainly be an obvious
move for the private company to head in this direction, especially now
as technology stocks are being received favorably by Wall Street. I've
written pretty extensively over the last few weeks about companies like
Evergreen Solar, Active Power and Capstone Turbine all issuing very solid
IPOs as a result of, in my opinion, their business models in new technologies
and / or alternative fuels. There is arguably a general perception within
the financial community that energy companies incorporating new technologies
into their business models will gain an increasingly strong lock on the
energy market in the next two years. With few exceptions, energy companies
exploring new technologies that have issued IPOs over the last several
months have performed comparatively well.

As commercial and industrial customers want various service options that
reduce their dependence on traditional utilities and the transmission grid,
start-up companies like SmartEnergy might find a very profitable niche.
Perhaps the greatest marketing edge that SmartEnergy has is its customer
service, again resulting from its online presence. Customer interaction
can be conducted via the telephone or over the Internet, enabling 24/7
account access and the ability for customers to check their accounts at
any time.

The downside, of course, is customer reluctance to sign up with a start-up
company that they may not know. In addition, SmartEnergy faces tough 
competition
from other online energy providers that also are gaining momentum in 
deregulated
markets, including Utility.com and Essential.com. None of these companies
has yet gone public, and are instead focusing on building critical mass
and establishing their brand identities. Yet, of the three, SmartEnergy
may be the most aggressive in terms of expansion, and could be on the fast
track to an IPO in the near term.
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Sincerely,

Will McNamara
Director, Electric Industry Analysis
wmcnamara@scientech.com
===============================================================
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SCIENTECH's IssueAlerts are compiled based on independent analysis by 
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