Of 3 million customers Rebecca
MacDonald got 1 million

Energy Savings Income Fund may be the North American energy industry's best kept secret, CEO Rebecca MacDonald tells us, but may be about to change radically as the firm starts to gather customers in US markets.
     US investors have been taking notice of the firm's payouts, noted MacDonald, who recently announced the firm's 18th rise in distribution to shareholders since going public in January 2001 -- that year's biggest Canadian IPO.
     Her successes set an example for US marketers understandably depressed by retrograde regulators south of the border.
     When Canada opened its gas markets to competition in 1986 -- before the UK, Australia and the US, said MacDonald, she created Energy Savings.

Of 3 million potential customers in Ontario, the fund signed up a million one at a time using only door-to-door sales.

The pitch is price security.  She found out what the market wanted and gave it to them.  The firm sells only five-year, fixed-rate contracts.      Residential and small business customers don't have time to follow energy prices and they want the security of knowing that they are protected from price spikes, said MacDonald.
     MacDonald's customers are willing to pay a premium for that.
     Although the fund has the word savings in the name, that benefit is never mentioned in the sales pitch, she assured, although she believes that over a five-year contract her customers do save money.
     Energy Savings' business model is to absorb the price risks and win out in the margin between what the firm pays for gas and what's in the customer's contract.
     The fund pre-delivers gas to LDCs that serve its customers based on the number of customers in the LDC's footprint and on an average customer's demand.
     The LDC delivers the product and bills the customer for it -- then pays Energy Saving for the amount used.
     The actual schedules of delivery and payment differ from region to region.
     Energy Savings has to guess how much gas to deliver, so the fund differentiates between "gross" customers -- the number of actual contracts -- and a net customer, based on average use and calculates how much supply to deliver.
     So a larger customer counts as more than one net customer despite having just one contract with Energy Savings. And when the fund uses "aggregation" in its financial report that means signing up customers.
     That's how they use the word in Canada, MacDonald assured us. The firm isn't an aggregator as the word is used in Ohio.
     The fund has never used any advertising or any other method of marketing other than selling door-to-door.
     It's the hardest way to sell because people are put off by having a stranger knock at their door, noted MacDonald, but she firmly believes it's the best.
     She wants her salespeople face-to-face with the customer, explaining the benefits of a long-term, fixed-price deal.
     Power and gas are commodities that just show up as needed and that makes her want the human interaction.
     It's easier to get a person to say "yes" on the phone or at a stand in the shopping mall, noted MacDonald, but an easier sell doesn't bring the kind of customer she wants.
     Energy Savings wants customers who clearly understand and want the benefits of long-term security.
     Her staff calls all new customers to verify they know what they are buying and to keep tabs on her sales staff.
     We noticed an ad budget in the first quarter report.
     The company had gone to an ad agency for ideas to boost customer retention and is planning a TV, print ad and billboard campaign.
     The ads aren't meant to bring in new customers.
     She's really committed to door-to-door.
     The problem is that for the five years after customers sign up -- the only reminder they get that they are an Energy Savings customers is a few lines of text on the LDC's bill.
     "Unless they happen to call us with a problem, we never speak with them."
     MacDonald wants her customers reminded during the contract of what they're getting for their money.
     Have fluctuating gas prices affected Energy Savings business, RT asked.
     High gas prices boost sales, noted MacDonald, because people get nervous about price spikes and energy bill surprises.
     When gas prices are softer, her sales people work harder yet the signups stay fairly constant, said MacDonald.
     Canadian LDCs take the risk of dead-beat customers, she noted -- not true in the US, so when Energy Savings moved into Illinois this year it created a good-credit hurdle for new customers.
     Illinois is Energy Savings' first foray into the US.
     The firm created a Chicago-based subsidiary called US Energy Savings (a corporation, not a fund) and hired a former president of Shell Trading, Gas & Power, Debbie Warnet, to run it.
     The American market is many times larger than Canada's, noted MacDonald, and she sees lots of growth potential -- but plans to mine it slowly.
     The firm set sights on Indiana and New York -- over the next five years. For the business model to work, she said, a complex matrix of factors has to be in place including regulatory regime, delivery and gas storage availability and the LDC's billing skills.
     Some markets that one might expect to be a perfect fit failed the firm's stringent vetting, she added.
     What about selling power?
     When power markets opened up in Canada, the fund signed up 150,000 customers in the first six months, said MacDonald.
     She saw big flaws in the market design -- as a participant in the stakeholder meetings and predicted the price spikes that ensued.
     When power prices spiked, Prime Minister Ernie Eves panicked, fearing the spikes would cost him the election. MacDonald was called in to advise him. He didn't follow her advice, capped prices (too low) and lost the election.
     She publicly called him a "complete lunatic" at the time, she noted, and hasn't changed her view.  The Ontario government subsidized the difference between market prices and the low caps but that got mighty expensive.
     Eves soon realized subsidies were impossibly high and called back the stakeholders to undo the blunder but it was too late, she added.
     Competition was ultimately OKd for the very big C&I users -- so Energy Saving held onto the contracts it had and only sought new power business among those few without price caps.
     She's looking at some US power markets, but isn't ready to reveal any plans.
     The move toward power competition in North America took a big hit from the Enron disaster, she noted, but she seems confident open markets will prevail.
     MacDonald and Energy Savings are sort of the antithesis of what Enron became.
     She's a straightforward, honest single mom -- a widow now for many years -- and focused on the measured, steady growth of value in her firm and long-term benefits for her customers.
     Energy Savings doesn't carry any debt -- its growth is self funded and the firm does everything on a cash basis.
     MacDonald can't see herself doing a flashy merger or acquisition just to put out a press release or paying for her employees to join exclusive clubs, although they are welcome to join on their own dime.
     She believes herself to be one of the lowest-paid CEOs in the energy business and she's proud of it.
     Her preference is to hold a significant amount of stock in the firm and benefit alongside the other shareholders from the firm's growth.
     A quick scan of the headlines in the news release archive on the firm's website shows lots of pro-competition comments and filings.
     UK utility Northern Electric liked Energy Savings' business model enough to make the firm an offer it couldn't pass up in 1998 -- buying its 150,000 or so UK customers, MacDonald reported.
Energy Savings' chief rival is Centrica -- with a similar business model, she told RT, and she welcomes the competition.
     (Story originally published in Restructuring Today 8/18/04)

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