Time to Prepare for Tomorrow
“Utilities by and large are unequipped to compete in the new marketplace.”
“The next few years are going to be brutal for utilities.”
“Tomorrow`s world will be quite different than the world of today.”
These are all statements that were made by the keynote speakers at the recent DistribuTECH `99 Conference and Exhibition held in San Diego, Calif. They don`t portray a very optimistic outlook for utilities during the next few years. All the speakers seemed to feel that incumbent utilities probably won`t survive in the competitive energy industry without making some dramatic changes.
Why then are the large investor-owned utilities dragging their feet and still not giving their customers a reason to stay with them? Even in California, where incumbent utilities are actually competing with energy service providers, the incumbents are still moving very slow when it comes to offering their customers more than just a commodity.
I even heard one California utility representative boast about how only one percent of the residential customers have switched electricity suppliers since the market opened to competition. I think this individual, as well as many other utility executives, has a false sense of security. While it is true that few residential customers have seen a reason to change, once the CTC charge (stranded cost recovery charge, which is currently five cents per kWh) is eliminated from the California consumers` bill, I believe consumers will have more incentive to switch–especially if they are not being offered anything other than a commodity.
Haven`t these utilities heard of value-added service? For several years, vendors have been developing and offering utilities technology that will allow them to offer value-added services. However, even with the great technology strides that have been made, most utilities are still not implementing value-added service programs.
According to keynote speaker, Ed Barlow, value-added service, not traditional core services, will be utilities` future. Utilities are in the business of creating and supporting customer`s lifestyle choices, he said. General session speaker David Pruner, Engage Energy, echoed this by pointing out that utilities are no longer simply providing a commodity. They are providing products and services on which customers are spending their energy dollars, he said.
Results from a recent survey conducted by RKS Research & Consulting, a nationwide market research firm, agree with these speakers. The national survey found that there is rising interest among consumers and small business in purchasing packages of additional products and services from their energy supplier. The report also went on to say that there are not mass markets for these types of bundled service, but instead, they fit into niche segments that will require highly tailored promotional strategies.
The message is clear and more than that, it is not new. In order to survive, energy providers must offer more than a commodity. Each year when I attend DistribuTECH and other industry events, I hear the same message and I see the technology demonstrations. There is no doubt that the market is out there and the technology is ready. However, incumbent utilities may or may not be the ones to offer the services. These utilities have heard the bleak predictions as well as the messages about how to avoid failure. Whether or not they choose to heed the message remains to be seen. I have a feeling that if they choose to ignore it, their non-utility competitors will end up taking substantially more than one percent of their customers.