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Value-added Products and Services What Should Utilities Offer?

Issue 9 and Volume 5.

By Teresa Hansen, Managing Editor

For several years, industry experts have been predicting that value-added products and services will be the key to utilities’ and energy services providers’ (ESPs’) success in the competitive market. However, so far, there has been a lot of talk about value-added products and services and little action. As interested as they are in retaining customers and attracting new ones, utilities and ESPs are still trying to find their way through the deregulation maze.

Few disagree that offering additional services is a good idea, if not a necessity; but given the economic uncertainty that exists in the energy industry today, it is difficult to know which offerings will succeed and which will fail.

Since San Diego Gas & Electric (SDG&E) is the first utility to operate in a completely competitive retail market, based on the experts’ predictions, one would expect SDG&E to be in a position to profit from value-added products and services. Unfortunately, it is unlikely that a value-added product or service of any kind would have pleased SDG&E customers when they experienced “excessive charges” this past summer. It is also unlikely that any value-added product or service could have increased revenues enough to remotely offset the nearly $2 billion (as of August 31) SDG&E was unable to collect due to a statutory rate freeze put into place by California lawmakers.

Nevertheless, utilities and ESPs are developing strategies and making plans about the choices they are going to give customers in the retail market. According to Chartwell’s Value-added Products & Services Report 2000, which was issued late last year, several business strategies do seem to be emerging among utilities and ESPs hoping to profit from retail competition:

  • The convergence of electric and gas to provide a more broad service offering to customers;
  • The pursuit of a specific share of the market, which usually means large commercial and industrial customers; and
  • Diversification, or trying to be lots of things to lots of different customers.

Value-added Trends

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While compiling report data, Chartwell’s researchers and reporters uncovered some interesting trends. They found that strategic alliances were common among companies that showed early signs of success. They also found that utilities generally focus more on energy-related products and services, such as energy management and advanced metering and billing, and stay away from the wide array of non-core offerings. Home security and surge protection were found to be the fastest growing utility services for residential customers. Providing customers with their energy use via the Internet showed potential for the most growth in the next few years. Other interesting facts revealed in Chartwell’s report indicate that energy auditing and monitoring is the most popular residential and small-business product, offered by 58 percent of the utility companies surveyed (Figure 1). Lighting and surge protection tied for second, provided by 45 percent of utility companies. The third most common product is outage notification, at 42 percent.

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Chartwell’s researchers found that value-added product and service offerings for commercial and industrial (C&I) customers have more appeal to utilities than residential and small-business offerings. Most of the utilities surveyed are taking a proactive approach when it comes to C&I customers, hoping they can keep them satisfied and thus disinterested in changing energy providers. The report indicates that special billing services, including consolidation and auditing (Figure 2), are popular-a trend aided by the Internet and its ability to easily distribute data. Energy audits, power quality monitoring and engineering/consulting services are other favorites that also take full advantage of the Internet and its associated technologies.

Telecommunications

Telecommunications and the various services that go along with it have received a lot of attention as possible opportunities for utilities looking for additional revenue streams. In Chartwell’s report, such opportunities are investigated and there is a marked opinion difference among those polled. Some respondents believe telecommunications is a viable new business opportunity mainly because it is a higher growth business than energy and it is ubiquitous-every electric utility customer is a potential telecom customer.

Others surveyed believe telecom is not a good fit for utilities because it is highly competitive, the margins are small and most utilities do not have a clear understanding of the business.

Montana Power is one utility that believes telecom is a good fit. At one time, the utility provided electricity and gas to 439,000 customers in central and western Montana, and owned nonregulated businesses in oil, natural gas, coal and independent power production. The company recently made public its plans to sell its electric and natural gas transmission and distribution business for about $1.1 billion to Northwestern Corp. The proceeds from this sale, along with proceeds from the sale of its utility business and nonregulated businesses, will be reinvested in Touch America, the company’s telecommunications subsidiary. “This is our future and focus,” said Bob Gannon, Montana Power’s chairman. Touch America will have an 18,000 route-mile fiber optic and wireless network by year-end 2000 and 26,000 route-miles by year-end 2001. So, while telecom may not be a viable opportunity for all utilities, this example clearly shows some utilities believe it is worthwhile.

Internet Impacts

Many of the services identified in Chartwell’s report were not economically feasible just a few years ago. However, the Internet has changed that. Wide acceptance of the Internet and Internet technologies is having a major impact on value-added service deployment. Internet Protocol (IP) and other Internet standards are now widely accepted. The use of IP technology for wide-area network (WAN) and local-area network (LAN) implementation is now quite acceptable as the international standard for data networking. The days of proprietary architectures are waning.

The acceptance of open standards has also impacted system architectures and product design. While there is not a single universal product standard across all industries, three de facto standards have emerged in the home networking market: LonWorks (EIA-709), CEBus (EIA/ANSI-600) and X-10. All three of these standards have been widely adopted by vendors and have set the stage for massive growth in products that are ready for networked access.

“Technology has caught up with vision,” said Adam Marsh, marketing vice president and co-founder of Coactive Networks Inc., a company that markets commercial and residential solutions for extending Internet access to control systems, personal computers, meters and other electrically connected devices. “Many of the value-added services sound great in theory, but to make them financially feasible there has to be technology. Suddenly the pieces have come together.” The technology barriers that were so prevalent just a few short years ago are coming down. Utilities now have some economically viable technologies available to make value-added services a reality.

Of course the problem of what to offer and to whom those products should be offered still exists. These decisions may prove to be much more difficult than technology decisions.

DTE Energy Offers Value-added Services

Two years ago, DTE Energy, decided to get into the energy service market and created a wholly owned subsidiary, DTE Energy Technologies, as an energy services company (ESCo) to provide value-added products and services to residential, small-business, commercial and industrial customers. The company started out offering energy information services and R/HVAC (refrigeration/ heating, ventilation, air-conditioning) services to C&I customers. It has expanded its offering to now include energy auditing and consulting, lighting retrofits, standby/emergency generation and cable testing services. It is also beginning to provide distributed generation technologies such as residential fuel cells from Plug Power and mini-turbines through an agreement with Pratt & Whitney Canada Corp. and The Turbo Genset Co. Ltd. of the United Kingdom.

According to James Gariepy, DTE Energy Technologies information technologies vice president, the company believes it is important for customers to have information about their energy usage before making decisions regarding energy management programs, retail choice options, or on-site generation technologies. “We never thought there was a huge market for monitoring itself, but we feel it is an enabler for other services and allows customers to make wise, informed decisions.”

Gariepy said that initially the company worked with residential customers to offer energy management and home automation services, but at that time the equipment costs for each customer were too high. The company did, however, continue its monitoring and control services for C&I customers. “Detroit Edison has many large industrial customers requiring special care and attention and they have always been very good at monitoring and gathering usage information, and developing innovative rate structures,” he said. The additional services seemed to be a natural fit for such customers expecting top-notch service from their energy supplier.

Strategic Alliance

When DTE Energy Technologies originally began offering energy information services, they quickly recognized the need to standardize gateways and communication methods and networks. Based on the recommendations from their own LonWorks engineers, the decision was made to use gateways from Coactive Networks. The gateways connect all types of appliances and devices used in homes and businesses to the Internet. They are based on open and international communications standards and can easily communicate with products using LonWorks, CEBus and X-10 standards. The two Coactive gateways that were selected were still in prototype. DTE Energy Technologies made suggestions on ways to improve the gateways to fit their particular needs, and Coactive listened, said Gariepy. “Coactive really didn’t have to do much from a technology standpoint, they fully understood our needs and had already started on many of the changes” he added.

DTE Energy Technologies recently began using the gateways, along with software from Silicon Energy, to roll out a new, innovative Web-based service for C&I customers, energy|now.

energy|now

The energy|now offering is basically an energy monitoring service that allows submonitoring and load aggregation. If usage deviates from certain preset parameters, a real-time alarm along with real-time information is sent to the customer via a text pager. The information is also automatically sent via the Web to the customer’s computer so the customer can call up all the usage data. “Being able to transfer data via the Internet is a big plus,” Gariepy said. “It eliminates expenses associated with using long distance telephone service to transmit data.

“The service does allow control, so the customer can remotely control the load or have us do so. However, most commercial and industrial customers do not want us to do any control. They just want the data,” Gariepy said.

DTE Energy Technologies charges an initial setup fee for the equipment and a monthly fee for the service. According to Gariepy, by year-end, DTE Energy Technologies will provide service to more than 100 customers with about 5,000 monitoring points.

“Coactive’s product has helped us make these services available at a reasonable cost,” Gariepy said. “DTE Energy Technologies is interested in offering a broad range of value-added services that will appeal to many customers. But, we are also interested in developing niche services, such as this, based on information collected from the broader offerings.”

Now that the equipment costs for providing such services are more reasonable than they were just two years ago, Gariepy said they will again start looking at residential products and services.