Customer Service Takes Center Stage as Competition Emerges
By Teresa Hansen, Managing Editor
If you aren`t sure where the utility industry is heading, don`t feel too bad. It is hard to tell these days. It is clear, however, that things are changing and they are changing dramatically. If you don`t think so, consider this: Enron Corp. recently offered California consumers two weeks of free electricity and electric rates 10 percent lower than in 1997.
In addition, these rates are guaranteed to stay at this low rate for at least two years. According to an Enron spokesman, the company is positioning itself to help Californians make the most of the opportunity presented to them as residents of the nation`s first state to deregulate the electricity marketplace.
This is just the beginning–California residents are sure to be inundated with more offers, and this trend will inevitably spread to other states as deregulation becomes a reality. Most experts agree that it won`t just be energy companies making these offers. Advances in technology coupled with new regulations will allow other businesses to enter the arena without large capital investments, giving traditional utilities a run for their money.
How will these traditional, established utilities compete? Most believe that they, like the Enrons of the business, must also offer unique, worthwhile services to customers. Changing to a customer-driven industry–a requirement for survival–requires utilities to change their way of thinking.
At the most recent AMRA Conference held in Chicago, Linda Zappulla, EnergyOne`s senior vice president of marketing, spoke about expanding utility services. She pointed out that satisfied customers are not necessarily loyal customers (Figure 1). Even with an 80 percent satisfaction rate, 50 percent of utility customers will switch for a 10 percent discount in price. This statistic makes Enron`s offer quite threatening to existing utilities.
Ron Chebra, AT&T Solutions Utilities and Energy Industry Consulting Practice`s senior manager, broke that statistic down by age group. The following table shows the percentage of customers who indicated they would switch electric providers for a discount.
These statistics illustrate just how important it is for utilities to develop ways to satisfy customers. Zappulla warned that it is a mistake for utilities to think that just because they own the meter and bill the customer, they own the customer. This is not the case, she said, the customer owns himself. Utilities must capitalize on their customer service experience and their existing relationship with the customer to compete. Utilities must treat their customers like people with options and understand that some are more profitable than others and should be given better service, Zappulla said.
Barbara Haas, NIPSCO (Northern Indiana Public Service Co.) Industries New Products` president, spoke at AMRA about utility services also. She said utilities need only look at industries such as banking, airline and telecommunications to see what can happen when monopolies deregulate. Prices, along with profit margins, typically drop and customers leave, she said. Perhaps the most unsettling statistic is that, historically, it is the non-traditional competitors and new market entrants that win.
If utilities are to survive and prosper in the new marketplace, they must use some lessons learned from those industries that have already been where they are headed. According to Haas, there are several techniques and strategies that won`t work in the competitive environment.
Utilities should not expect, nor should they wait on regulatory clarity, because they won`t get it.
Utilities cannot wait for the sure thing, or the $100 million dollar product, to be discovered before they begin to offer innovative services and products to their customers.
Utilities must eliminate the disdaining attitude they have toward many (50 percent according to Haas) of their customers.
Utilities should not expect instant product penetration either when choosing a new product/service or once the product/service has been offered.
Utilities cannot continue to operate on “utility time.” They must decide on a direction and move quickly.
Utilities cannot continue incremental efforts, or “dabbling,” at expanding their services. They must expand for profitability.
Utilities must break the old rules and quit playing mid-court. “Today`s world is for rule breakers, not rule makers,” Haas said.
Building Customer Loyalty
As Figure 2 illustrates, in order to cultivate a loyal customer, utilities must move beyond merely satisfied to very satisfied. Being easier than the competition to do business with is perhaps the most important ingredient in building customer loyalty. In today`s fast-paced world, customers value their time and typically welcome one-stop shopping. Customized products that can be offered as a package–bundled services–will be big sellers. In contrast to past offerings, customized products can no longer be the exception to the rule. Utilities must design information systems that will allow them to offer unique products without redesigning the system.
Chebra warns that utilities should not confuse bundled services with services that are merely offered at a discount price or those that are billed on one monthly statement. “Bundled services must make sense,” he said. Bundled services make sense, according to Chebra, if they reduce the cost of providing each service individually; provide comfort, convenience, control, quality and care; offer an advantage when linked together; and are logical, reasonable and well thought out.
Chebra said some of the most logical services for utilities to offer are those dealing with energy and related products, telecommunications, and protection and security monitoring. He believes utilities should consider alliances, strategic partnerships and cooperation as a means of providing these services.
In light of some of the past year`s announcements, Chebra is not alone in his belief. Several utilities have announced their intent to offer additional services, often partnering with companies in the telecom or security business.
Potomac Electric Power Co (PEPCO) and RCN, a New Jersey telecommunications company, have announced a joint venture to provide a package of services to 682,000 households in Washington D.C. and its Maryland suburbs. Each company plans to pump $150 million into the joint venture over the next three years to build a fiber-optic network. The two companies will provide local and long-distance phone service, as well as limited Internet service, through an arrangement with Bell Atlantic Corp., the dominant local telephone company in Washington D.C. “We were looking to bring to our customers down here a comprehensive package of services,” said John McCallum, Potomac Capital Investment Corp`s (a non-regulated subsidiary of PEPCO) president. “We evaluated doing this business ourselves and we did not have the expertise to do that. Realistically, we needed to find a partner with that expertise,” he said.
Virginia Power, PEPCO`s neighboring utility is pursuing a similar venture. Through its subsidiary, VPS Communications Inc. (VPSC), the utility plans to offer limited inter-exchange telecommunications services throughout Virginia. According to William Mistr, VPSC`s president, the company will be a competitive access provider, linking long-distance carriers directly with larger customers such as businesses and government agencies.
Bay State Gas Co. announced that its nonregulated affiliate, EnergyUSA, has recently completed service agreements to provide energy services valued at approximately $6 million to four organizations in New England: Beacon Residential Management Co., the U.S. Navy, Reebok International Ltd. and Unifirst Corp. Beacon Residential Management has contracted with EnergyUSA to improve the energy-efficiency of three of its large residential complexes by replacing electric heating and water heating systems with natural gas systems. The contract is valued at approximately $3.6 million. EnergyUSA has been awarded a $1.2 million contract to replace inefficient oil-fired heating systems and electric hot water heating systems with high-efficiency gas systems at the Navy`s Portsmouth, N.H. Naval Shipyard`s Admiralty Village housing complex. Reebok has contracted with EnergyUSA to design and install state-of-the-art, high-efficiency heating and lighting systems at its Stoughton and Avon, Mass. distribution centers. The contract is valued at more than $400,000. Unifirst, a garment service industry leader, has contracted with EnergyUSA to upgrade eight of their facilities to meet the energy-efficiency standards defined under the Environmental Protection Agency`s “Green Lights Program.”
Chelan County Public Utility District (PUD), Wenatchee, Wash., has teamed up with Avista Advantage, an energy services enterprise of Spokane-based Washington Water Power (WWP), to offer Chelan County PUD`s customers a new line of products. The two companies have begun jointly marketing four new products: the Nighthawk Deluxe utility carbon monoxide (CO) detector, the Nighthawk alarm only CO detector, the Nighthawk smoke detector and the Liebort surge protector. “In the emerging competitive energy markets, electric service providers will be offering their customers a host of new products and services,” said Roger Braden, Chelan County PUD`s general manager. “Our alliance with Avista Advantage provides us with an excellent opportunity to embrace this new concept.”
In another venture, WWP is preparing to conduct a pilot program based on a concept the company believes would give all Northwest consumers access to market-priced power while preserving the region`s low electric prices. The proposed pilot, which is being called the Local Access Market Pricing (LAMP) proposal, will give a group of customers the option of selecting their electric service from a menu featuring prices based on the type of energy and term of the purchase agreement they select. In addition to traditionally priced, long-term electric service, WWP will offer short-term, monthly and annually priced energy services, all of which will be based on current market prices.
Cadence, created in a joint venture by three of the nation`s largest energy companies: Cinergy Corp., Florida Progress Corp. and Century Energies (a new company formed from the merger of Public Service Company of Colorado and Southwestern Public Service Co.), plans to offer a variety of innovative products and services to customers nationwide. According to a company spokesperson, Cadence`s goal is to provide energy managers with the tools they need to minimize corporate energy costs and manage national, multi-site energy use. Some of the products and services they plan to offer will involve interactive software, billing services, metering services and pricing services.
The United Illuminating Co. (UI), a Connecticut-based utility that provides electricity and energy-related services to more than 310,000 customers, recently introduced a new bill with a simplified format, giving the utility the ability to expand its basic component charges when the time comes. “When Connecticut`s electric utility industry is restructured in the next few years, this format will allow us to easily `unbundle` additional services and fees now bundled in bills,” said Anthony Vallillo, UI`s client services group vice president. “It also gives us the ability to produce customer friendly bills in the competitive marketplace of the future.”
These are just a few examples of the many innovative services being developed by utilities. There are thousands of profitable possibilities. Savvy utilities have recognized this and are making every effort possible to become customer-driven businesses able to compete with companies offering free electricity–and who knows what else.
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