E-business evolves from cool to strategic tool

Timothy W. Greisinger

IBM

E-business has emerged as a vital strategic tool for electric utilities and energy services companies. Utilities are lagging behind many other industries (See Figure 1), but they are quickly seizing upon the opportunities that e-commerce, online customer service and intranet operations management can offer.

Mainstream utilities are transitioning from an initial “brochureware” stage, where marketing information simply is published on a Web site, and are starting to link customers with existing business processes. For example, enabling utility billing systems with e-business capabilities can give customers the ability to make service requests and view account information via the Web. Transactions like these address the growing demands of today`s savvy consumers while helping the utility company to reduce service costs.

Companies making this transition have to overcome a major challenge known as the security chasm. As an organization opens up its internal systems to the outside world, it`s concerned not only about potential security issues but also about exposing inefficient processes. As a company progresses in its adoption of e-business, another set of challenges, the business value chasm, needs to be addressed in order to justify significant process transformation and integration.

Major drivers for utility e-business investment include being competitively positioned in the network economy, generating customer loyalty and profitability, and improving operations throughout the enterprise.

Net gencos

Not all companies follow the typical adoption process described above. A new class of Net-generation companies is appearing whose business is inherently Web-based, designed to exploit the attributes of the network economy and leverage digital, rather than physical, assets. These Net-generation newcomers can completely change the rules for competition and force traditional companies to respond to this new competitive challenge with business designs that dramatically alter their costs and value propositions.

The Net-generation players similar to Amazon.com or e*Trade haven`t changed the dynamics of the utility industry … yet. But they will, and these new market entrants, with new competitive models and offerings need to be watched closely.

One of the most visible Net-generation energy companies is Utility.com. Launched earlier this year, it claims to be the first Internet utility company. Utility.com offers consumers customized energy quotes, on-line usage monitoring, electronic bill payment and up to 15 percent savings on electric power. Venture capital firm Idealab!-responsible for FreePC.com, eToys and Citisearch-is supporting Utility.com behind the scenes.

Essential.com, based in Massachusetts, is another Net-generation energy company. It brokers a full suite of services-gas, power, local and long distance phone service, Internet access and other products. Unlike Utility.com, Essential.com markets offerings from branded suppliers such as AllEnergy, Bell Atlantic and Earthlink. Consumers are not able to purchase electricity separately. Essential.com requires that they purchase their energy bundled with other services, giving the company more control on margins.

In the United Kingdom, an e-business called Buy.co.uk helps consumers locate the “cheapest supplier in the deregulated market” for electricity, gas and cellular services. After the name of the current supplier, expenditures and desired payment structure are keyed in, the on-line system lists the three cheapest suppliers in the customer`s area. Buy.co.uk receives fees from suppliers for each consumer lead it generates. In North America, a similar service from Sempra`s EnergyMarketplace.com makes it easy for businesses to shop for competitively priced natural gas and electricity. It lets them select targeted energy suppliers, submit RFPs and view supplier quotes. Final energy contracts, however, are still completed off-line.

The last Net-generation example is EnergyAgent.com from North American Power Brokers in Maynard, Mass. This service provides a low-bid Internet auction approach to purchasing electricity and natural gas. Customers post their energy requirements on the site and suppliers can bid on their aggregated loads.

Although these Net-generation companies might be considered experimental, they demonstrate how e-business can quickly enable nimble and aggressive market players to enter the market.

Online customer service

One way utilities can reduce the competitive threat from both Net-generation and traditional energy services competitors is forge stronger customer relationships today. It also makes good economic sense, since acquiring each new customer costs six to eight times as much as keeping an existing one.

Online customer service provides an excellent opportunity to enhance customer relationships, especially with the growing population of consumers who prefer to conduct business electronically. Energy analysis tools, such as Central & South West Corp.`s consumer energy audit, help address customer concerns while gathering valuable usage and demographic intelligence data.

Shifting customers to the Web for customer service can also help utilities reduce service costs. Booz-Allen compared online costs with traditional models in the banking industry, and found that it costs roughly a dollar to do a transaction in a bank branch; fifty cents over the phone; twenty-five cents through an ATM; and only thirteen cents over the Internet. While no such studies have yet been conducted in the utility industry, the cost of Web-based customer service is clearly lower than other more traditional methods.

In North America, utilities such as Boston Edison and Florida Power & Light (FP&L) allow consumers to review online information about their last payment, billing history, outstanding balance and energy usage.

At New York State Electric & Gas (NYSEG), university students are encouraged to use the Internet to initiate service requests rather than make phone calls during semester breaks when call center volumes peak. Rather than simply taking the information and creating an internal e-mail, NYSEG routes the request within its call center using an automated workflow process.

Over the past six to 12 months, utilities have become very interested in using the Internet as a vehicle for electronic bill presentment and payment. The potential benefits include reduction of monetary float (since bills are collected sooner), lower billing costs and a new interactive marketing channel. Several electronic billing relationship models exist for utilities to consider. Some are choosing to transfer their billing information to firms such as CheckFree which present consumers a consolidated view of their bills. Other utilities, wanting greater control over customer data and interactions, are using their own Web sites. Canada`s BC Hydro and New York`s ConEdison have opted for such a model.

With little room for product differentiation and shrinking variations in price, utilities are continuing to turn to customer service and convenience as a method for distinguishing themselves. They are finding Internet applications to be a popular-and cost-effective-way to provide valuable services to their customers.

Business-to-business opportunities

To date, most of the attention and activity in the electronic commerce arena has been focused on business-to-consumer transactions. In reality, business-to-business electronic commerce is the larger market. Analysts forecast the online business-to-consumer market will drive $108 billion in revenue by 2003, while business-to-business commerce on the Web will reach $1.3 trillion.

The speed of business adoption is also noteworthy for utilities given their importance as customers. Today 81 percent of large commercial businesses are linked to the Internet, as are 60 percent of small businesses. Increasingly, these customers expect-even demand-to do business via the Internet. On average, businesses spend five times more on online purchases than do consumers.

In Canada, Ontario Hydro is using the Internet to conduct electronic commerce with its large commercial and industrial customers. These companies contract on an annual basis for rights to purchase Ontario Hydro`s surplus power at reduced costs. They historically were notified of excess capacity by fax and had to call the utility to place a nomination. At their request, Ontario Hydro moved this information to a secure Web site. Now these customers can review pricing online and submit a nomination electronically.

Texas Utilities (TXU) has created an e-business application to service their top accounts. Customer service has been streamlined as a result. For example, Home Depot previously had to call account representatives to obtain customized energy and billing reports for each of its 40 stores in the TXU service territory. The reps collected data from the customer system, manipulated it with a spreadsheet and mailed it out. Now, Home Depot securely accesses TXU`s customer database through the Internet and pulls the reports itself. Customers get the data in a few minutes rather than waiting two-to-three days. In return, TXU eliminated a costly process and strengthened important customer relationships at the same time.

UtilityPro.com is FPL Energy Services` venture that offers outsourced energy management to large, multi-site energy users who use power in small increments. The Internet is used to provide business clients with energy and tariff analysis, operational support and bill consolidation. Services like this can help utilities differentiate themselves and generate profits in a commodity market.

The Internet is also enabling the rapid transformation of the wholesale energy marketplace in North America and around the world. Gas nomination and electric transmission capacity systems use the Web to provide open access to the market. The Web is becoming the platform for exchanging market data between marketers, distribution companies and power exchanges.

Energy services firms, such as HoustonStreet.com, are offering online energy commodity trading, customized energy information and powerful search engines. In Europe, Enron recently launched EnergyDesk.com to market its energy trading software. PJM, the independent system operator in Philadelphia, launched its eData Services which gives energy marketers and traders secure access to real-time capacity, power load and pricing information.

Improving operations

Secured within the protection of enterprise firewalls, intranets enable utilities to share company knowledge, provide human resources (HR) services to employees, streamline operations and automate work-flows. A 1998 Meta Group study identified a 38 percent return on investment (ROI) for intranet applications deployed at 41 companies. Independent of industry or company size, the companies with publishing applications averaged a 26 percent ROI. This grew to 40 percent for those with collaborative capabilities and peaked at 68 percent for the cases where intranets used database access.

Intranets are being used by utilities and similar types of companies to streamline document flow, work management, human resources services, procurement of goods and services, and even to facilitate integration of resources and processes during mergers and acquisitions. For example, at Sempra Energy in California, an intranet-based application was used to coordinate merger activities involving the successful combination of Pacific Enterprises and Enova Corp. in 1998. More than 100 executives and project team members from both utilities used the tool to collaborate on tasks, track projects and publish reports.

The challenge for most utilities has moved beyond establishing a Web presence. The challenge is how to exploit e-business as a strategic business tool.

By developing corporate e-business plans, utilities are working to transform and extend their existing processes, information systems and business relationships. Most importantly, they are developing ways to use e-business to compete more effectively. n

Tim Greisinger (twgreis@ us.ibm.com) is solution marketing director for the IBM Global Utility & Energy Services Industry in Oak Brook, Ill.

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The Clarion Energy Content Team is made up of editors from various publications, including POWERGRID International, Power Engineering, Renewable Energy World, Hydro Review, Smart Energy International, and Power Engineering International. Contact the content lead for this publication at Jennifer.Runyon@ClarionEvents.com.

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