Commodity play: U.S. businesses seek broader range of services from energy suppliers

North Salem, New York
A new national survey by RKS Research & Consulting shows that larger customers are stepping up switching, shopping and supplier re-evaluations. Plus, a majority of American businesses now believe that as long as their energy costs are low, it doesn’t matter what supplier they choose, according to a new national survey. If this trend continues, it could spell increased opportunity for new entrants in energy markets-and pose a threat to utility business customer retention efforts.

While substantial majorities of U.S. businesses express interest in buying energy-related products and services from their electricity suppliers, the number of offerings from energy sources has actually declined from six months ago, according to the survey. Because of this gap between expectations and performance, increasing numbers of American businesses say they now look to their current energy supplier only for the delivery of electricity.

While more businesses across the U.S. are aware of their options to purchase power from competing suppliers, respondents have not noticed any increase in communications from their own electricity suppliers. As a result, confusion remains; one third of businesses in deregulated states still don’t know they have the option of choosing their electric supplier. And business customers express concern about the treatment they’ll receive from their former supplier if they switch.

Plus, among key accounts-larger business customers paying $200,000 or more for electricity each month-shopping, switching, and re-evaluation of energy suppliers is accelerating, according to the survey. Already, nearly one in five key accounts in deregulated markets have switched their suppliers-doubling the results of just six months ago.

Despite the deregulation of major markets, businesses in states with competition and choice are more critical of their energy suppliers than those in regulated states, the survey points out. In particular, business assessments of utility rates and service are significantly lower in the Northeast and Pacific Coast, two major regions with increased competition. The results suggest that business customers in choice states are demanding more from their energy providers.

These results are part of the year-end 1999 survey of U.S. businesses conducted by RKS Research & Consulting, a nationwide market research and public opinion polling firm. RKS completed telephone interviews in late 1999 with energy decision-makers at some 1,400 U.S. businesses with average monthly electricity bills of $3,000. RKS also interviewed nearly 400 multi-site key account customers.

According to the RKS findings, some eight in 10 U.S. businesses (83 percent) now use their energy supplier only for the delivery of electricity, an increase of three percentage points from six months ago. Only 14 percent of business customers turn to their electricity provider for energy consulting, additional products, or services. And majorities of business customers believe that electricity delivery performance is the key criterion for choosing an electric supplier. At the same time, the data indicates a strong market potential for repeat or expanded purchases of energy services. Indeed, more than seven in 10 business customers and eight in 10 key accounts indicated an interest in additional energy-related offerings from their electricity supplier.

“These results show that interest is growing among business customers in a broader ‘electricity-plus’ relationship with their energy supplier,” said Rick Ginter, RKS director of research. “Yet these latest and lower scores show that business customers are still focusing on the commodity delivery service from their present supplier. This perception threatens to relegate the traditional utility to a narrower role as customers turn elsewhere for the new products and services they seek.”

As of year-end 1999, a quarter of U.S. businesses are aware of competition and choice, according to the RKS survey. Only a third of these customers received deregulation information from their energy supplier, the same score as six months ago. And nearly half found this material confusing or self-serving.

As evidence of this confusion, business customers and key accounts continue to voice concern about supplier favoritism. Specifically, the majority who believe that their present energy supplier would show preference to current customers over companies that switched suppliers remains unchanged from six months ago.

“All of these findings suggest that electricity suppliers are not investing sufficiently in communicating directly with their business customers,” said Ginter. “With our data documenting increased advertising and direct customer contact by competitors, one has to ask: What are the incumbent suppliers waiting for?”

While key accounts may be lagging in receiving deregulation information, the RKS survey shows they are already demanding more from their suppliers. For example, one in three key accounts changed or re-evaluated a supplier in the last year; in two thirds of these situations, the action was taken to reduce costs. Natural gas suppliers were targeted by a two-to-one margin over electricity providers, according to the RKS respondents.

The same large customers are increasingly familiar with the major national energy marketers, the survey shows. For instance, Duke, Enron and Southern Company are known to majorities of key accounts, and two-thirds of the businesses sampled say they would consider such firms as potential replacements for their current energy supplier.

While business customers seem focused on low costs, detailed RKS analysis of the data shows that service, customer focus and performance combine to create customer perceptions of value. In contrast, key accounts are most influenced by the image of the service provider, according to the RKS analysis.

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