By Khali Henderson

PAETEC Holding Corp. (PAET) announced Monday that it has acquired competitive electric supplier U.S. Energy Partners LLC of Amherst, N.Y., for approximately $3 million in cash.

The acquisition of U.S. Energy Partners, a privately-held company that sells electricity to more than 3,500 customers in western New York State, will allow PAETEC (Booth #1616) to provide complementary services to its communications customers. And the CLEC will kick off an energy agency program at the Channel Partners Conference & Expo in Las Vegas this week.

This is the second acquisition the CLEC has made in the energy sector. PAETEC acquired VARO Technologies, an electric and gas brokerage in 2008. The company also operates an energy division, PAETEC Energy.

VARO was our first toe in the market, said PAETEC COO EJ Butler Jr., noting that it served 350 electric and gas customers as a broker. In contrast U.S. Energy Partners is a step up the supply chain. Its an ESCO, or Energy Service Company, which in New York State means it buys directly from the energy supplier. So, while VARO is like a master agent, US Energy is like a reseller/rebiller, Butler explained.

PAETEC Energy will continue to broker gas, but its primary focus and revenue generator will be in electricity.

The company plans to expand its ESCO operations into all 14 deregulated markets, starting with New York City by May 2010, Butler said. Pennsylvania also is on the short list.

In addition, the company plans to beef up its energy division from nine to 35 mostly in sales by the end of the year.

The company also plans to roll out its electricity services to its indirect sales channels, beginning with presentations at noon Tuesday in the PAETEC meeting room (Tradewinds A at the Mandalay Bay Resort) during the Channel Partners Conference & Expo.

Agents will be compensated with upfront bonuses based on the term of the deal plus a residual. Agents earn a fraction of a cent on each kilowatt hour of usage.

Butler said selling the commodity services is just the beginning of a longer, three-year plan to also leverage its Pinnacle expense management tool and equipment for services programs in the energy sector.

We have over 44,000 medium and large business customers nationwide, and weve found that our average customer spends four times as much on energy as they do on telecommunications, said PAETEC COO E.J. Butler Jr. Now that customer data centers and IT departments have become a primary user of energy, both telecom and energy are becoming increasingly complementary. Weve seen a trend towards energy decisions being made by the office of the CIO, and this acquisition further supports that strategy.