<h2><I>CSU’s role in alliance unveiled</I></h2><B>By DONNA LADD</B> <FONT SIZE=-1><I>Contributing Writer</I></FONT>

Colorado Springs Utilities’ stake in a national, private alliance of utility companies became clearer last week when the city-owned utility partially complied with a Freedom of Information Act request by the <I>Colorado Springs Business Journal</I>.

On Feb. 18, CSU became one of four partners in the alliance, which was formed to combine resources in order to compete in a variety of service arenas in markets around the country. Along with CSU, Omaha Public Power District (also public), along with the coop Cobb (Ga.) Energy Management Corp. and the private Idaho Power Co. are founding partners of the private, limited liability company, which was incorporated in Delaware in January.

“The Alliance is intended to permit the Participants, by combining their resources, to enter and compete in markets in which the Participants are unable to compete individually … (and) to facilitate the development of new and innovative products and services by the Participants …,” states the memorandum of understanding, signed Sept. 15, 1997.

CSU will begin offering a variety of products and services — which it has yet to reveal — using a brand name owned by the alliance, HomeVantage. All residential “value-added products and services,” as the alliance calls them, offered by the utility will be branded HomeVantage or SerVantage. CSU says it will contract with local businesses to provide the services “when feasible.” The utility will not guarantee that the services will be contracted locally.

<h3>Who are the players?</h3>

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The family tree of the Allied Utility Network — just who owns what and it accountable to whom — can be confusing, a fact conceded by CSU Marketing Manager Sherri Newell. “Isn’t it though?” she said Wednesday.

But, the history goes something like this. Due to the impending threat of deregulation — which probably will not happen before 2001 — CSU started examining ways to make more money and shore up its holdings in the community about two years ago. The $2 billion city-owned enterprise started looking at marketing options, including the idea of marketing non-utility products and services as some private utility companies are doing around the country, Newell said.

CSU then considered buying a franchise to function as its retail service arm, but decided not to go that route. “We’d lose ownership, spend a lot money and then in five years, people (competitors) would come in and take the brand,” she said. Thus, CSU decided to form an alliance with other utilities around the country to pool resources.

“CSU is thought of as one of the much more progressive utilities in nation. People started talking to us,” Newell said.

Marketing Director Harold Miskel said much of the idea came from him and an old friend, attorney Mike Gianunzio, who used to work in Colorado Springs and consulted for CSU. Now in Snohomish County, Wash., Gianunzio helped set up a partnership between the public utility there and Idaho Power, Miskel told the June 17, 1998 Smart Government Committee of the Community Action Network.

“He’s an old friend,” Miskel said. “I found out that the two of them were seeking other companies like us. So last June (1997), we started the process.”

Ironically, earlier this year and after loud public outcry, the Snohomish County Utilities Board voted against participating in the alliance because it would mean a public entity competing in the private sector.

<h3>Alliance staffing</h3>

The alliance process entailed putting together both public and private utilities with at least 225,000 retail customers (CSU was an exception) and then finding a staff to run the alliance. For that, in February 1998 the alliance bought the assets of the Atlanta, Ga.-based A&amp;C Enercom, a utilities consulting firm.

Intellisource, a Connecticut-based outsourcing firm, had purchased units of A&amp;C Enercom, including the HomeVantage brand name, in August 1997. Intellisource’s clients include AT&amp;T, Shell Oil and IBM. The company is also an affiliated company of Safeguard Scientifics Inc. (NYSE:SFE), “a unique partnership of entrepreneurial companies focused on improving business productivity,” according to Intellisource documents.

While Intellisource documents show it purchased the HomeVantage brand last year, founder and president of A&amp;C Enercom, Dean Alford, said the alliance bought it back earlier this year. However, the alliance’s working Web site <A HREF="http://www.energydepot.com">www.energydepot.com</A>, from which it is already hawking products, still uses the A&amp;C Enercom logo and affiliation — not the alliance’s.

According to alliance documents, Alford was officially hired this year as president and CEO by the newly formed alliance.

The purpose of Alford’s office is to develop products and services for the utilities to sell, and to provide back-up support, said Alford, a Democratic state congressman.

“We provide the support they (utilities) need … with operating retail operations,” he said. “That’s our only purpose.”

“We provide no products; we go get product partners,” he said.

The Georgia consulting component, which operates as the home office for the alliance according to documents, does not make any money off the valued-added products and services. “The alliance makes money. People join the network. We are paid fees for the services we provide,” Alford said. Those include market research, product development and market planning, he said. “We don’t get a cut of the profits.”

</h3>’A private entity’</h3>

The member utilities split all profits, as well as losses of the alliance. That is, the member utilities (now up to five with the addition of the Snapping Shoals, Ga., electric coop) <I>are</I> the alliance, a fact that brings up intriguing accountability issues.

All member utilities, whether public or private, have agreed not to provide publicly any information that could hurt the alliance competitively. Prior to last week’s disclosure, CSU had refused to provide requested documents about its membership in the alliance, saying it would put the utility at an unfair competitive advantage.

However, CSU reversed its decision and released a variety of materials, including its original memorandum of understanding with the alliance, the alliance’s limited liability agreement and a variety of e-mails with many senders and recipients deleted and no attachments included.

CSU also provided a letter from Alford saying why he could not allow many records — including alliance board meetings and agendas, budgets, contracts and business plans involving CSU — to be released.

Withholding all such documents is “critical” to the alliance’s “economic and competitive success,” Alford said. “Allied Utility Network is a limited liability company organized under and operating pursuant to the laws of the State of Delaware,” he further wrote. “It is a private entity separate and distinct from Colorado Springs Utilities and was not formed for the sole benefit of Colorado Springs Utilities.”

CSU’s characterization of its relationship with Allied often varies. Referring to the alliance, CSU Executive Director Phil Tollefson told the Black Chamber of Commerce this week that CSU “recently bought a company that has been delivering these kinds of things in southeast part of the country.”

A Colorado Court of Appeals
earlier this month ruled that CSU cannot withhold any documents subject to open-records requirements because it functions as an “enterprise.”

An Allied document shows that CSU is a 25-percent equity shareholder in Allied. CSU’s board of directors, the Springs City Council, gave CSU the go-ahead earlier this year to invest $1 million in the start-up of the alliance.

<h3>Public-private gray areas</h3>

Some critics of the alliance suggest that it may intentionally contain a mix of public and private members in order to confuse the public accountability issue — and leave public-records requests lodged in a public-private gray area.

Yet, Newell said that the founders had no such intention. They included private utilities “just because it’s more forward thinking in my opinion instead of limiting it, lends a broader mix.”

The alliance’s memorandum of understanding requires that the alliance have an equal number of public and private utilities. It also calls for a national geographic disbursement of members that “represent retail service territories located in all major regions of the country.” It shows that the alliance hopes to reach 3 million customers around the country with its products and services.

Documents show that Allied members intend to offer any one of a number of products and services, including Internet service, long distance, surge protection, home security, customer billing and many others. The alliance already has a working Web site, <A HREF="http://www.energydepot.com">www.energydepot.com</A>, where residential and business customers can order such products as surge protectors and CO detectors, as well as conduct their own energy audits. The site is currently linked to sites of some participants of the alliance.

Newell said Wednesday that CSU has not decided whether to market the Energy Depot Web site in the Springs. “We’re not certain if that’s something we will be involved with or not …,” she said. “Something could be available (in the future).”

Such uncertainty — and the possibility that CSU will sell products in any way other than by partnering with local businesses — is worrisome for some business owners, as well as strict adherents to free enterprise. In essence, they say that a public, tax-exempt city enterprise should not be allowed to enter the private arena, especially with such a national approach.

“They’re trying to straddle the fence, having the best of both worlds. Either they’re private or they’re public, but you can’t be both,” said Stephen Maddox, founder of the Free Enterprise Coalition, a group of Colorado Springs business owners that opposes the alliance.

<h3>Derailed effort</h3>

Just such concerns helped derail Allied’s efforts in Snohomish County, Wash., with a variety of politicians, residents and business owners loudly protesting the possibility of a public utility using taxpayer funds and advantages to become big business. (Two other utilities, Public Service Company of New Mexico and the Gainesville [Fla.] Regional Utilities, also pulled out after having signed the original memo of understanding.)

“These enterprises, which fundamentally depart from the utility’s traditional focus of directly serving PUD ratepayers, would use public money and resources to create for-profit business lines that would operate beyond the scope of PUD commission oversight and public scrutiny,” stated the Web site of Everett, Wash. group Refuse, a coalition formed to keep the alliance out of the area. (See <A HREF="http://www.everett.net/users/kat/refuse/">www.everett.net/users/kat/refuse/</A>)

A copy of the group’s concerns about the alliance, and local newspaper articles about the outcry, were provided by CSU as part of its open-records compliance. Although the documents were faxed to CSU in December 1997, they were not included in materials submitted by the utility to its board, the City Council, which approved CSU’s role in the alliance in January 1998.

CSU staffers downplay concerns that the alliance means that CSU will compete against private companies, potentially against some here in Colorado Springs, according to its own documents.

<h3>Local or national?</h3>

Newell said that CSU can choose which companies it works with to offer its products and services. “We have flexibility to work with any vendor or supplier we choose. Even if Allied has an arrangement with a national supplier, we can choose to use local. That’s right in line with our community values. In every statement we say we will use local contractors or providers where feasible,” she said.

“We’re leaning toward using local contractors,” Newell added.

However, CSU surveyed residential customers this spring about whether it should use national providers if “it would result in more choices.” Nearly 60 percent said yes. Business customers were not asked their opinion on that issue.

CSU may also enter other markets and go to head-to-head with local businesses. Allied itself cannot compete in such a way, Alford said — only the utilities. “If Colorado Springs Utilities wants to run ads in Denver, that’d be their choice,” he said. If a utility chooses to expand its territory, he added, they would offer the products under the HomeVantage brand, much as Sears offers Craftsman tools.

Newell said CSU has no immediate plans to expand into other markets. “I don’t see us going to Denver any time soon, but we could. It’s not on the RADAR screen by any means,” she said.

What is on the agenda is to start offering products and services very soon to Colorado Springs customers, perhaps initially including surge protection or even long-distance services, CSU says, declining to provide more specifics. The services will be vetted by a nine-member committee consisting of two local business owners, a Chamber of Commerce representative and several others. However, CSU makes the final decision.

CSU will work with the committee to decide what will be charged for the HomeVantage service. The customer will then pay the utility; CSU will pay any business contractor used to deliver the service.

<h3>Revolutionary idea</h3>

Newell thinks the alliance is an idea whose time has come. “It’s a neat thing to be a part of — it’s revolutionary in this industry,” she said.

Allied board member Miskel said in June that CSU and the alliance hope to really make a mark on the industry. He hopes to see it thrive as “a national company that markets products and services across the country,” turning a profit by its third year, he told the Smart Government Committee. He said he would like to see another 50 to 75 network members — who do not share in the equity — pay dues to offer the HomeVantage services.

“If we could garner 15 to 20 million customers across the U.S., that’d be 15 to 20 percent (of the total market),” Miskel said.

This kind of thinking by a public employee worries some opponents of the plan, who say all public utilities should stick to what they do best: providing utilities. “[The new enterprises] are unnecessary, risky and an unwarranted use of public dollars,” stated the Refuse Web site.