Yankee Gas

First on national financial loan network

Financing usually comes from banks, savings and loans, credit-card companies and other traditional financial institutions that make money off of money. Now, in a new trend, utilities find themselves in the loan business.

The latest to join this trend is a New England utility, Yankee Energy System Inc., of Meriden, Conn., which found a way to expand its financing subsidiary, Yankee Financial Services, using customers from its main business, Yankee Gas Services, as a foundation.

In June, Yankee Financial Services signed on as the first utility for the National Loan Center, a new project by Fannie Mae and Viewtech Financial Services, Inc. (Viewtech), to provide a centralized place for the processing of low-interest home loans for energy-saving appliances and other improvements for single-family residential customers.

The center offers below-market, tiered interest rates, quick loan approvals and streamlined underwriting guidelines to Yankee Financial Services, launching many contractors to spread the message to interested customers.

Through the program, homeowners can borrow up to $15,000 for up to 10 years to install things like high-efficiency heating and cooling equipment.

At the center, Viewtech of Anaheim, CA, serves as the facilitator of the program: receiving applications from approved contractors, underwriting and originating the loan to the program guidelines, and even issuing the loan check and tracking monthly payments.

In turn, Fannie Mae, a congressionally chartered shareholder-owned company and the nation's largest source of home mortgage funds, purchases the loan obligations.

In 1994, Fannie Mae launched Showing America a New Way Home, a pledge to provide $1 trillion in targeted housing financing by the end of the decade. As part of this initiative, Fannie Mae is working with utilities to help customers through a low-cost source of funds, to finance energy-efficiency improvements.

Right match, right time

As a subsidiary that provides financing alternatives to customers, Yankee Financial Services looked for a new kind of customized financing when it discovered the National Loan Center, according to Matthew Ide, Yankee's manager of financial services.

Ide explains Yankee Financial Services was first introduced to the concept at a convention of the American Gas Association in March 1996, through a presentation by Fannie Mae and Viewtech. "I went into it knowing I had to do something," he says. The company wanted to offer financing services, like those in the retail appliance market, without a great deal of cost.

Ide adds Yankee already had a gas conversion program (gas furnace) set up, but no financing program for established customers. He says two essential motivations were:

"Allocating capital for homeowners, who are customers, seemed very attractive to us," Ide says.

Fannie Mae's David Carey and Viewtech are co-marketing this venture throughout the country. The loan includes:

Carey explains that Fannie Mae's mission is to reduce the costs of home ownership. "After a mortgage, energy costs are the next greatest costs for a home-owner."

The main reasons for targeting utility companies are they tend to work well with contractors, understand the technologies, want to provide good customer service and have high-quality name recognition with homeowners, he adds.

Both Viewtech and Carey tout the benefits to utility customers. Those include:

The benefits to the utilities include:

Experience counts

Experience plays a key role in promoting the product and it also weighed heavily on Yankee's decision to pioneer as the first utility to sign with the national center.

First of all, Ide says Yankee markets the program using its established name and reputation as Connecticut's largest utility. He says an overwhelming share of customer base is coming from the regular gas utility base.

The biggest selling point for Yankee, he adds, was Viewtech's experience. "You look at somebody who is doing what you want," he says. "It has a proven track record."

Since July, 1995, Viewtech operated a similar loan program for Pacific Gas & Electric Company of San Francisco. Through that program, more than 12,000 loans totaling an excess of $80 million were approved in two years.

Describing the negotiations as "quite a balancing act," Ide says that it was a three-way financial agreement between Yankee, Viewtech and Fannie Mae that made the project finally come together.

The initial enrollment was in May with a very concerted effort by the Yankee Gas Services marketing department, which company spokesperson Geralyn Johnson says was integral. They conducted a series of breakfasts for contractors in a "face-to-face" rollout, where they distributed the material needed, including loan documents, to contractors.

Of the 75 interested contractors who attended the breakfasts, 35 became authorized to handle the program, Ide believes the contracting force will grow as the program gains momentum.

"The biggest strength of this program is that we can give all of the documents to the contractors," Ide explains." The contractor goes to the customer's house and, for the first time, he has all of the [forms]."

Ide says that fact saves valuable time and proves less of a hassle for contractors, who set the loan process into motion by simply faxing it over to the center for financing approval.

The contractors fill out the loan document monthly agreement and a financing agreement, which takes about five to ten minutes on an average, and the loan center goes through the retail installment contract.

"Unless there's a problem with the credit, then everything's set . . . it streamlines the whole process," Ide adds. There is a two-hour window to check the credit, but after that the deal is solid.

No-hassle management

"They basically take care of it soup to nuts," Johnson says, noting that Viewtech handles the payment books, and the day-to-day activities of the program. "Our major responsibility is to manage the contractor network and to do marketing," Ide says. Yankee has two primary marketing directions:

As for the second responsibility, Ide says the financing program will always be offered through a contractor. The company expects to increasing interest from potential contractors as the loan program grows.

To join the center, Yankee marshaled its reserves and paid a one-time fee. "We got premium services for an excellent price," Ide says, without discussing specific terms. He noted that technically it is not "customer lending," it is "retail installment" because of regulatory limitations.

Without the Fannie Mae National Loan Center, such a program was cost-prohibitive for the company, Ide explains. Although Yankee Energy is the largest utility in the state of Connecticut, he says the company is not large enough to lay down the necessary capital for its own customized financing program. It has a residential customer base of about 100,000 and 30,000 industrial and commercial, Johnson says.

First Advantages

When asked if they mind being the first to join the center, Yankee's representatives say "No way. We are very comfortable being out there first," Ide says. "Our company prides itself on trying to be innovative and to think out-of-the-box."

Johnson adds: "First-on-the-block at Yankee encourages us. Our motto is to provide imaginative, responsive energy solutions."

Ide says it allows Yankee to offer services to residential customers once reserved for commercial customers. Yankee Financial Services provides such things as traditional installment loans and equipment leasing for many commercial clients, from large casino hotel to a small local body shop. "We've been able to fill the gap as far as leasing," Ide says.

Ide thinks the central service center will help streamline the residential segment, which failed once at Yankee when they initiated a natural gas conversion association with a local bank. "The process was very confusing," he says.

Because consumers use modern communications technology for approval for things like credit cards, the center should work easily and be accessible to any contractor, no matter from where they are calling.

"I foresee this as laying the foundation to expanding even more services," Ide adds.