Turnkey Rental Program - Business Opportunities


	Turnkey Rental Program – Business Opportunities


	*Imagine the following scenario:*

	Laurie, a working parent, arrives home from work one night to find her water heater leaking all over the basement. She contacts the plumber only to find out that the installed cost of a new water heater is about $500. She doesn't have $500 in expendable cash at her fingertips. What does she do? Borrow the money? Call the gas company? Call another utility?

	There is an alternative! The plumber tells her that your utility has a new program in which Laurie can pay $8.50 per month, with no other upfront costs, and the utility will arrange for a premium quality heater, one of the longest lasting on the market, to be installed in her home within hours. The utility will also give Laurie complete "peace of mind" by servicing and replacing the new heater if there are ever any problems. The utility might also offer her a special energy rate on the electricity she uses to heat the water if she agrees to allow them to control the heater off-peak. Laurie may even save enough on her electric bill to pay for the rental charge!

	The Vaughn TurnKey Water Heater Rental Program is a cradle-to-grave business solution for electric utilities looking to attract customers like Laurie to increase their share of the residential water heating market, as well as to increase their incremental income. In response to the threat of increasing competition, many utilities have turned their attention to large industrial and commercial users, those customers most likely to jump ship and purchase power from a competitor for as little as a 5% price differential. While each C&I user represents a great deal of revenue, the residential market as a whole represents much greater numbers and more profit. While each residential customer may not seem so significant individually, the collective market is enormous, accessible, and potentially very lucrative. If it's load retention that a utility desires, there are two ways to go about it: get a few large load users, or get a lot of little ones. Another way to express it is: How do you eat a 20lb turkey? One bite at a time! The market for electric water heaters already exists. Slightly less than 10 million water heaters are sold every year of which 85% are replacements. Approximately 10% of all residential water heaters fail in any given year. So it's clear that at least 10% of your customers will have to replace their leaking water heater this year. This represents an enormous market potential! Regardless of your utility's strategic reasons for launching a water heater rental program, the chance to rent a water heater will be perceived by your customers as an innovative attempt to meet their needs. Even those who don't choose this option will be impressed with the availability of such a unique energy service. In surveys of U.S. customers who chose to participate in a water heater rental program: one third chose because of no upfront cost; one third chose because of no maintenance; one third chose because of low operating costs. Even if your utility chooses not to offer an off-peak rate to compete with gas companies, two-thirds of your customers will still rent a heater. The business of renting electric water heaters has an enormous market, as every residential customer is a potential candidate. It is also a business which involves "tried and true" products within well established core services integral to utilities. Most importantly, it is a business which is profitable. Unlike rebate and DSM programs of the past, a rental program is unique in that it generates a positive cash flow for the utility. There is also nearly zero risk, as there is no cash outlay without offsetting revenue. You don't buy the heater until it is installed and generating rental income! The ongoing monthly rental income stream creates an internal rate of return far greater than allowable regulated returns. The Business of Electric Water Heaters Nationally, electric water heaters account for about 45% of the residential market (roughly 16 billion kwh annually). Electric water heaters are losing market share to gas at a national rate of approximately 4% per year. An electric water heater represents about 30% of the energy used in a home - 4,000 to 5,000 kwh. Collectively, electric water heaters contribute between 20% - 25% of their connected load to peak (.8 to 1.0 kW) Most of the revenue from water heating is the kwh sales during peak times - and at peak margins. The Business of RENTING Electric Water Heaters Equal number of kwh sales. An off-peak rental water heater will produce the same number of kwh sales as a demand heater. Stop loss of market share to gas. You can not only hold your own, but actually gain market from gas. (15 - 20% gains in some programs) Increased market share beyond gas. A rental program knows no boundaries. Why not lease water heaters to competing utility customers? No contribution to peak. Rental water heaters can be large enough to operate off-peak. Each heater then adds the value of a deferred peak kW. Greater margins. A rental heater operated off-peak utilizes the margins of off-peak power instead of peak power. New incremental income: A rental program generates a monthly cash flow on top of kwh sales. Imagine an additional $8.50 every month from 10% of your customer base. ROI greater than regulated returns. Over its life, a rental water heater can generate returns far greater than regulated asset based returns. Almost zero risk. The utility does not purchase the heater until it is installed and generating income. There is never a cost to the utility without an offsetting income. Renting electric water heaters is the perfect business for electric utilities. The key to success is the right product and the right partner. The Vaughn TurnKey program provides both.


		© 2003 Vaughn Corporation P.O.Box 5431 • 26 Old Elm Street Salisbury, Massachusetts 01952 tel: 800-282-8446 • fax: 978-462-4683/6497