Utility.com, an online discount energy provider, is getting out of the energy business, citing higher-than-expected costs, and instead will partner with utilities to provide software as an application service provider.
"Prices were dramatically higher than we had originally forecast, and that really overwhelmed any other considerations," said Chris King, chief executive of the Emeryville, Calif.-based company.
Utility.com, a 3-year-old company that promised 20 percent discounts from the standard utility charges, sent notices to customers this week saying that service will end in 30 days, and that customers will be switched back to mainstream carriers.
In California, where an energy crisis has caused rolling blackouts, that means switching back to Pacific Gas and Electric or Southern California Edison, which have both announced significant fee hikes because of the crisis.
"That's too bad," said Steffan Carroll, a San Jose, Calif., resident who has been receiving discounted electricity through Utility.com since August. "I think they had a good idea."
When California's energy market was deregulated in 1996, consumers were promised their choice of utility provider, and ultimately lower prices in response to market-driven competition.
However, skyrocketing natural-gas prices and a dearth of power plants in California have left the major utilities on the brink of bankruptcy, spurring the California Public Utilities Commission (CPUC) to approve rate hikes.
Analysts say they aren't surprised at Utility.com's move.
"The potential savings offered by an Internet business model just pales in comparison to the cost of the product," said John Egan, director of strategic and marketing issues with E Source, a Boulder, Colo.-based research firm on electric and gas utility issues.
Utility.com, which has 10,000 utility customers in California, 30,000 in Pennsylvania and 1,000 in Massachusetts, also sells long-distance phone service and Internet access.
King said that, as an ASP, his company has already contracted to provide software services to Gaz de France, a French utility with 12 million customers, and EnPower, a group of cooperative utilities in Minnesota with 1.6 million customers.
Analysts have been largely skeptical of e-commerce companies that have switched their business models after hitting hard times, seeing it as a last-gasp attempt at survival. Many Web companies have dropped their efforts to sell directly to consumers, opting instead to sell their knowledge and software to other companies.