Peco rivals see power in number of peddlers

In a conference room at the Radisson Valley Forge Tuesday night, Fred Stevens addressed an audience of 150 people, explaining a new way to earn extra money - the most amazing sales opportunity he had ever encountered.

There's no product. No inventory. No collections.

It's . . . electric power.

"All you have to do is nothing more than show people how to save money on a bill that they're going to pay anyway," said Stevens, a pitchman for North American Power, a Connecticut supplier.

At the same time one floor above, Randy Hedge, an Arkansan wearing a cowboy hat, exuberantly delivered the same message to about 300 prospective salespeople for Stream Energy, a Texas supplier:

The age of deregulated power has arrived in Pennsylvania, and Peco Energy Co. customers should prepare for the onslaught.

"Timing is important," said Hedge, a top salesman for Stream Energy, which is modeled on multilevel marketing organizations such as Mary Kay Cosmetics and Avon. "How many of you would have liked to have bought Wal-Mart stock back in the '70s?"

With Peco's rate caps expiring at the end of this month, 15 alternative suppliers are offering residential electrical discounts up to 10 percent off the utility's 2011 supply rates. Even more suppliers are targeting large commercial and industrial customers.

This is no small game. Peco's electrical supply is worth more than $3 billion a year, and the rest of Pennsylvania's is worth $6 billion, according to the state Public Utility Commission. Even with a razor-thin margin on a kilowatt-hour of energy that sells for 9 cents, there is much money to be made.

Under Pennsylvania's Electric Choice Act - New Jersey has a similar law - traditional utilities such as Peco no longer generate power and are solely distribution companies. Peco will still maintain the wires and send out the bills, but its customers can switch to alternative suppliers.

Customers also are free to stay with Peco, which will buy power and offer it to customers at a rate known as the "price to compare." For residential customers, that price is 9.92 cents.

Most alternative suppliers are employing traditional mass-marketing techniques - direct mail, billboards, telemarketing.

But several are relying heavily on the human element, deploying legions of salespeople who appear to be as energized as the product they are selling.

Stream Energy, of Dallas, is deploying a sophisticated campaign whose sales force is focused as much on signing up other salespeople as it is about signing up customers.

More than 2,000 attended Stream's kickoff rally Saturday at the Convention Center, including many out-of-state Stream "directors" who have come to Philadelphia in recent weeks to try to expand their networks here.

Stream says its salespeople can exploit "warm networks" to sign up their friends, families, and neighbors, overcoming the resistance many customers have to switching from traditional utilities.

"Direct marketing is the best manner for evangelizing the advantages of deregulation," said Rob Snyder, Stream's chairman.

"You can't explain deregulation in a billboard, and nobody reads direct mail. But a direct conversation between two people who know each other well, you can explain deregulation in five minutes."

But Stream's marketing arm, called Ignite, has its critics. Ignite's commission structure is designed to produce escalating payments to agents who have developed multilevel networks of salespeople who are "downline."

The result is a skewed hierarchy, in which a few top salespeople can earn millions while most people who sign up struggle to recover their $299 entry fee. According to the company's data, the average earnings for the entry-level salesperson - 87 percent of the sales force - are $130 a year.

Stream says it has 170,000 sales associates and 400,000 customers.

The fee structure is a red flag to Robert L. FitzPatrick, who operates a website called Pyramid Scheme Alert. He said organizations like Ignite rely on an "endless chain" of recruiting.

"If I need 20 people below me to make consistent money, then only one in 20 people can make money from such an operation," he said.

Stream has withstood complaints that it operates a pyramid scheme, but it is facing lawsuits in the two states where it operates, Texas and Georgia.

Scott M. Clearman, a Houston class-action lawyer who has sued Stream in both states, said the company enticed associates "with false promises of enormous profits."

Neither federal suit has been tried, and each is hung up in appeals courts on procedural issues.

Snyder, Stream's chairman, called Clearman's suits a "shakedown scheme." The company says it is forthright about the payment structure.

"We never say this is an easy business," said Snyder, adding that he believes many associates who join the sales force find the job more difficult than they expected and quit.

Stream's executives say they are accustomed to defending its business model. They say the company is the fifth-largest supplier in Texas, where it was founded in 2005; that its rates are competitive; and that customers are free to switch at any time if they are unhappy.

"Network marketing has gotten a bad name because, quite frankly, there are a lot of . . . networking marketing companies out there that exist just to exploit the associates," Snyder said.

North American Power, the other company holding weekly organizational sessions at the Radisson in Valley Forge, emphasizes that it is not a multilevel marketing organization like Stream's Ignite.

North American charges associates $49 to join, and the commission structure is weighted to induce salespeople to sign up customers, not other salespeople. Even so, only a few people get rich selling power.

Salespeople for North American are compensated 0.2 cent for every kilowatt-hour (kWh) of power consumed by their customers, which amounts to about $2 a month from each household using 1,000 kWh.

That means a salesperson must sign up many households to make a living.

"This isn't a network-marketing opportunity," said Kevin Marino, a North American area manager. "If you want to recruit, recruit, recruit, this isn't the company for you. We're all about kilowatt-hours."

For Tracy O. Johnson, 49, of Exton, who over the years has sold cable service, corsets, clothing, and religion - she is a Jehovah's Witness who knocks on doors - signing up customers for North American Power was a nice fit.

"I have finally found the perfect business," Johnson said. She and her sister, Sandra, have already enrolled 30 customers, she said, mostly relatives.

Michele Mann, 48, of Pottstown, a mother of two who has worked mostly from home, paid the $49 entry fee with North American last week after attending sessions for several suppliers, including Stream Energy. She said she preferred North American's commission structure.

Like many salespeople, she is not short on optimism.

"I think I can make a lot of money doing this," Mann said. "Six figures in a couple of years."