Survey Shows Low Switch-rate for C&I Customers

A recent survey of commercial and industrial (C&I) customers’ experience with U.S. electricity deregulation suggests that deregulation has created a fundamental change in the electricity market, transforming it from a predictable, stable arena to a risk-management exercise that caught most C&I customers unprepared, and has caused significant difficulties for many of them.

The study, conducted by management and technology consulting firm Booz-Allen & Hamilton, also found that the Internet currently plays only a minor role in critical pricing and purchasing decisions.

The survey of more than 500 C&I power customers nationwide found that only 20 percent of business customers surveyed have switched providers. Overall, those that did switch were able to lower their electricity costs. Most captured savings of 10 percent to 20 percent. However, a significant minority of customers who changed providers did not benefit; 10 percent of those that switched either saved nothing or paid more for electricity.

Kyle Datta, Booz-Allen & Hamilton vice president and the study’s co-author, noted that experts in the emerging energy markets often played a critical role. “Energy deregulation has not been the boon many companies thought it would be,” Datta said. “However, we found that when companies did achieve high savings, the key factor was the use of experts-either internal or external-who understood the emerging energy markets. Companies that relied on traditional procurement processes were much less likely to save money.”

The survey’s results also contradicted prominent beliefs about the effect of e-commerce on the marketplace. Despite predictions that Internet procurement would play a major role in the market, nearly all companies use the Internet simply to gather information on energy prices, competitive offers and technical information-not to place orders for energy, according to the survey. Forty percent of companies surveyed visit energy-related sites, but only 1 percent of business customers used the Internet to choose an energy provider based on a Web site alone. Most customers are willing to use the Internet as an information source, but still want to speak with a sales representative in person, the survey results indicated.

Even as a research tool, the Internet is of limited use to power customers, according to the survey. Booz-Allen’s survey found that buyers are very interested in using the Internet to obtain pricing information, but are frequently unable to find the information they need most. Only a few suppliers are willing to post offer prices for forward power contracts, and the spread between prices bid and asked for forward contracts was high.

For the moment, the Internet is no godsend for either power retailers or their customers, said Dan Gabaldon, Booz-Allen & Hamilton principal and study co-author. “But even though the Internet has not proven to be a useful tool for energy providers or customers to date, we believe the Internet can still play an extremely important role in a deregulated energy market,” he said. “However, for the moment, its best uses will have nothing to do with pricing or procurement.

“Booz-Allen believes the real promise of the Internet lies in keeping costs down by linking real-time energy usage information with real-time and forward power prices,” Gabaldon continued. “This will allow businesses to modify energy demand through remote control of equipment, subject to predetermined customer guidelines. The provider could then implement a pricing structure that moves up or down, based on a customer’s willingness to conserve.”

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