Corporate Profile
May 24, 1999
| Keystone Energy Services, Inc. | OTC Bulletin Board Symbol ‘KESE’ | |
| 9200 Sunset Blvd., Suite # 1020 | Recent Price $0.135 | |
| Los Angeles, Ca. 90069 | Shares Outstanding: 24,460,565 | |
| (888)-976-9371 | Est. Public Float: 12,837,973 | |
| Fax: 310-275-8848 | http://www.kese.com | |
| email: info@kese.com |
Company Description:
This company is an electric service provider (ESP). The Federal Government recently mandated the deregulation of the electric power industry. This has opened the door for independent power producers to supply the electricity to the public. The deregulation of the power industry has been mandated by the Federal Government in an attempt to increase the choice of the number of available electric power suppliers, increase competition and the choices available to consumers, and hopefully produce a lower cost and more efficient electricity industry. Electricity from power producers is placed into the transmission grid where it is then commingled with electricity from all power producers. This jointly produced electricity is then delivered to customers who are billed by their chosen electric suppliers. Keystone energy is an independent retail marketer of renewable, low polluting energy. It was the first publicly held company to enter this market.
Keystone Energy offers its customers a choice of two electricity products: (1) EarthChoice 100 consisting of 100% green energy for residential customers and/or small commercial customers, and (2) EarthChoice 50 consisting of 50% green energy and 50% low-cost system energy for small commercial customers. Keystone Energy sells the EarthChoice 100 into the residential market at approximately a 20% premium. The EnergyChoice 50 product is being sold at a 14% premium to the standard 1998 electric rates.
Industry Facts:
The domestic electricity production industry is a $200 billion industry. It is 2 1/2 times the size of the telecommunications industry. In 1978 the Federal Public Utilities Regulatory Policies Act (PURPA) required utilities to buy power from unregulated generators. The purpose was to encourage the development of smaller generating facilities, and the use of new technologies and alternative fuel sources such as wind, solar, water, and waste to produce electricity.
On April 24, 1996 the Federal Energy Regulatory Commission (FERC) issued Orders 888 and 889 to further encourage wholesale competition. Order 888 addresses the issues of open access to the transmission network and stranded costs. Order 889 requires utilities to establish electronic systems to share information about available transmission capacity.
Since March 31, 1999, California consumers from all customer classes have been able to buy electricity from either their current utility or another electricity supplier.
In 1998, the utility bill was broken into 3 components: Utility Distribution Company (“UDC”) charges, generation charges (the Power Exchange or “PX” price), and the Competitive Transmission Charge (“CTC” which represents the UDC’s recovery of their stranded investments). UDC charges cover the transmission, distribution and other related costs. The UDC charges remain fixed. The Power Exchange “PX’ is a statewide electricity commodity spot market that fluctuates with supply and demand. The CTC charges fluctuate inversely to the PX cost to keep the sum total of the 3 charges at approximately 10.7 cents per kilowatt hour. Utilities must purchase all their power needs onto he PX and pass it through to consumers without a markup. Keystone can purchase power from the PX or any other source depending on which is cheaper. To the extent that Keystone can purchase at prices significantly below the PX price, Keystone can generate modest profits.
Research has shown that almost 60% of the residential market favors environmentally clean power over conventionally produced power, even if it costs a little more. Keystone Energy has been able to sell its environmentally clean power at a premium.
On January 1, 1997, the Massachusetts Electric Company began delivering power for a retail competition pilot program involving the municipalities of Worchester, Lynne, Lawrence, and Northhampton. This was the first pilot program in the U.S. with a sufficiently large sample size to provide meaningful data. Over 4,700 residential and small business customers chose to participate. Of those, 31% of residential customers chose to purchase an environmentally “green” electricity. Over 53% of those customers who chose a green option chose the most environmentally green product and paid a 12.1% premium, the highest of all of the options.
At Traverse City Light & Power in Michigan, customers of their wind power program pay a 23% premium over the current rates. This program is sold out, and has a long waiting list. The utility is planning to build more green power generators to supply the strong demand.
At the Sacramento Utility District, subscription in their “Greenergy” program has been growing steadily since its introduction in August of 1997. Customers in this program pay an approximate 20% premium over normal utility rates.
Our Analysis:
We have initiated research coverage on Keystone Energy Services, Inc. Keystone Energy Services is one of first entrants into what we believe is a growing industry. The deregulation of the utilities industry is expected to continue in states other than California. This continued deregulation creates opportunities for companies that are nimble and able to quickly take advantage of these opportunities. We expect that in this industry, as is the case of other new emerging industries, those public companies that enter the market earliest are those that are the best rewarded by the market.
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