Before the July 4th break and the ensuing heat-wave, I had the good fortune to talk with Phil Nevels, co-founder of Chicago-based Power2Switch. While at business school in Chicago, Nevels teamed with Seyi Fabode to hatch a startup, that, as he put it, could be explained to his grandmother.
Nevels’ grammy-friendly pitch? Through their web-based on-line marketplace, Power2Switch lowers electric bills in states where the power supply has been deregulated.
During our phone call, I learned from Nevels that New Jersey is one of 15 or so states that allow electric consumers (including businesses) to choose their energy supplier.
The New Jersey grid was actually deregulated in the late 1990s, but it has taken over ten years for a marketplace to evolve and for suppliers–there are five now– to step forward. The biggest barrier was economic. If you go to Power2Switch’s website and start looking for electric deals from alternative suppliers, you’ll see a “Price-to- Compare” number. That’s roughly the wholesale price–a benchmark price that suppliers have to compete against.
“A big reason that a lot of folks didn’t switch during that long period after de-regulation was that wholesale prices were higher than the ‘Price to Compare’”, Nevels told me. “So people weren’t able to save money.”
That has since changed and the economics are much more favorable. Currently the Price-to-Compare in Jersey is over 12¢ per kWh (kilowatt hour), and new suppliers such as, say, Commerce Energy, charge just 9 pennies for kilowattage.
Explains Nevels: “The utilities make large purchase at a few points in time. So in Illinois, the region I’m in, ComEd will make a big purchase for three years out for a large population. Whereas these suppliers can buy and sell on energy exchanges on a real-time basis and take advantage of lower prices. They’re also buying on an individual basis, which is less risky.”
Where does Power2Switch live in this energy value chain? Their premise is to bring transparency and education to consumers in this confusing marketplace. If you live in Illinois, Texas, and now NJ, Power2Switch will list on a zip-code basis energy suppliers, their rates, and their contract terms, along with a benchmark comparison price if available. Once you register, you can buy a supplier contract.
Power2Switch gets paid a commission for signing up new customers. But Nevels was quick to point out that his company is very much aligned with the customer–their business is not based on a brief transaction and collecting a “bounty” for finding professional switchers. They get paid over the course of the contract, so they’re incentivized for a longer term relationship.
Power2Switch has other ways to engage with customers.
“On a monthly basis, we send out a savings report as compared to who you switched from,” Nevels says. “When you get to the end of the contract, we’ll communicate via email to remind you to choose a new fixed rate, instead of going into a default and higher-priced month-to-month plan. And we also have a dashboard that allows you to see all your contracts, as well as how much you’re currently paying.”
In the short-term, Power2Switch will continue to expand into new markets–New York, Pennsylvania, and Massachusetts are on their radar. And they are always improving the way they display usage information, having recently introduced a highly-interactive electric bill.
Just a hunch, but I expect after the A/C bills for this last heat wave reach NJ consumers, Power2Switch and their suppliers may see some new business.