Utilities, ESCOs venture toward the future with value add

April C. Murelio

Associate Editor

John pours another cup of coffee and glances at his watch-7:30 a.m., plenty of time to pay the bills before shuttling the kids off to school. Firing up the computer, John goes to his utility`s home page and pulls up his account. Although his utility doesn`t provide all services appearing on John`s bill screen, it does handle presentment and payment.

He scrolls down the list and reviews the totals-electricity, click; water, click; gas, click; cable, click; home and car loans, click; phone, click … John hits send, which signals his bank`s automatic payment system. Bills paid-7:45 a.m., and it`s time to roll.

Speculating when this mix of technology and consolidation might occur equates to asking Alexander Graham Bell to predict cell phones shortly after uttering, “Mr. Watson, I need you.”

Yet the motivation behind invention-bringing value to people`s lives-drives the industry toward John`s morning routine and beyond. As utilities and energy service companies (ESCOs) rediscover the customer and define their own futures in a free market, value-added or bundled services may hold the key.

“The future is not core. The future is value add,” said Edward Barlow, a futurist and keynote speaker at February`s DistribuTech conference. “Creating and supporting people`s lifestyle choices is the purpose of your business.”

Bringing value to people`s lives isn`t necessarily a new concept bandied about in utility board rooms. Utilities for decades now have kept the lights on and the conveniences humming. But until the kilowatt attaches to something people value, it remains a commodity with ever shrinking margins.

“Electricity can be generated for 1.3 cents per kilowatt, but when it`s attached to a cell phone, people will pay $50 to $100 for that same kilowatt,” said Craig G. Goodman, president and CEO for the National Energy Marketers Association (NEMA). “Our new industry must be customer focused, and it must make new product and service development a priority over the next three to five years.”

Finding, creating value

Many utility affiliates and ESCOs now offer a variety of products and services-home security and automation, Internet services, cable and satellite television, appliance repair, and green energy. Still others remain focused on core service offerings. All want to make the customer king.

“Value-added or bundled services are really about acquiring new customers or retaining the ones you`ve got,” said Philip Dunklin, Chartwell president and publisher. “Utilities and ESCOs must find ways to differentiate.”

Knowing what to offer customers remains crucial, with a value-added strategy working for some and failing miserably and expensively for others.

Chartwell`s Guide to Customer Retention & Loyalty points out that a retail venture can report losses for 12 to 16 quarters, depending on the scope of its business plan.

And although customers appear to be warming to utilities offering more than energy, many customer behavior predictions remain untested.

Despite all the uncertainty, utilities and ESCOs must forge ahead, said Dr. Harry Hoyle, Inteco`s senior vice president of research. “If utilities don`t move, the competition will walk in and take it all away. What was once an opportunity, time has turned into a threat.”

Survey says…

A recent survey of 1,000 American households conducted by RKS Research & Consulting found 46 percent interested in new services and billing options from utilities.

Service guarantees designed to compensate customers for supplier non-performance led the list, followed by the customer`s designation of a billing due date and a single bill for all utility services. Based on their own research, Hoyle and others see tremendous promise and necessity surrounding the utility bill. “A utility without control of its bill is similar to a ship at sea with no engine,” Hoyle said.

Although online bill presentment seems an upcoming rage, Americans aren`t nearly as high-tech as many think. Karl Jessen, Yankee Group`s retail energy service director, estimates only 44 percent of American households use personal computers, and 68 percent or more still pay bills by check.

“Being customer focused means you need to understand the decisions your customers make in life-not just about energy, but about everything,” Jessen said.

Dennis Smith, Chartwell`s editorial director, said understanding these lifestyle choices, may help utilities and ESCOs identify and fill niche markets. For example, a niche exists on the flip side of Jessen`s statistics, with at least 15 percent to 20 percent of Americans describing themselves as “techies.”

“To find a niche market, utilities and ESCOs need to understand these trends and then decide what they want to be,” Smith said. “Not everyone is ready to pay bills online, but some are. Is that going to be your niche? It may not be big now, but it will be.”

Connected to online bill presentment, lies an even bigger bundle of financial services-offerings not many utilities, ESCOs or their customers yet contemplate.

For years, customers flocked to utility programs offering appliance and home improvement loans. Yet when asked if they would use utilities for other financial services like home mortgages and car loans, Jessen said customer responses rank in the single digits. “We know utilities are very strong financially and these types of service offerings make a nice fit,” Jessen said. “But the consumer doesn`t know that yet. Utilities and ESCOs are still scratching the surface. The bundle is much, much larger than what they`re pursuing.”

But remaining close to the core doesn`t necessarily mean staying in the box, with a variety of creative bundling options available for those concentrating on energy-related products and services. “It`s true that customers want integrated solutions not a commodity, but that doesn`t necessarily require abandoning core competencies,” said Larry Rubenacker, Renaissance Worldwide`s vice president of global energy and utilities practice.

Regardless of their value-added approach, utilities and ESCOs continue to discover their competitive fingers and toes by launching new ventures. And although it`s still early, industry analysts believe the following three companies represent those taking some solid first steps.

Boston Edison forms key alliance

Determined to be the Northeast`s leading wires and pipes company, Boston Edison`s growth strategy includes providing one-stop shopping for telecommunications and energy services through a key alliance.

In 1996, Boston Edison and RCN, a subsidiary of C-TEC Corp., formed a $300 million joint venture offering local and long-distance telephone service, video, Internet access, and energy management and property monitoring services. In March, Boston Edison also launched online bill presentment and payment services through a partnership with edocs, an Internet billing software company.

A Boston Edison subsidiary, BecoCom builds fiber optic networks for information carriers like AT&T and RCN and handles the expansion of Boston Edison`s 200-mile cable network. Except for jointly negotiating franchise agreements with Boston-area communities, RCN manages the venture`s retail side.

However according to company research, Boston Edison customers are well aware of the link between the company that lights and heats homes with the one that entertains and keeps them communicating.

“We can`t, of course, promote the RCN services through Boston Edison, but we`re out there in the communities negotiating franchise agreements,” said John Conroy, corporate relations. “People are aware of the partnership, and this is a definite benefit.”

Besides the value-add exposure, the joint venture allows Boston Edison to launch into new markets while “sticking with its knitting,” or concentrating on its core, said Dick Hahn, BecoCom president.

“You have to be both honest and realistic about what you can do,” Hahn said. “We are very good at building large, sophisticated networks, but when it comes to going out and getting customers, we have some things to learn. You have to let your partners do what they do well.”

Tacoma`s Click! takes on TCI

Monopoly markets produce entrenched, stodgy incumbents, and the telecommunications industry, which started its restructuring effort in 1996, often resents new entrants. Boston Edison, for example, continues to deal with legal challenges from Cablevision, with the latest attempt to thwart competition dismissed by a federal judge in January.

“Incumbents aren`t just going to roll over,” said Jessen of the Yankee Group. “When you enter a competitive market, you`ve got to be ready to get your nose bloodied.”

Jessen and other industry analysts heralded Boston Edison`s efforts and also pointed to Tacoma Power, a gutsy Washington municipal competing with TCI by offering the area cable, broadband and Internet services at competitive prices.

Responding to regional and national research, Tacoma Power`s Click! now offers Worldgate, an Internet connection via television and sans computer, for $9 a month. Click! also plans to offer cable modems, the current wow of the industry, later this year.

Although TCI hasn`t challenged Click! in court, its saber rattling has been public and significant. But people in and around Tacoma seem tired of TCI`s neglected system and more than ready to embrace the competition, with one Seattle columnist quipping, “Just when it seems the only solution is to close the city and move to Tacoma…”

Tacoma Power expects to complete construction on the first phase of its $100 million fiber optic network by the end of this year. When it broke ground in December 1997, it stood as the lone competitor, a situation that changed rapidly. “We`re seeing quite an influx of competitors,” said Deb Stewart, Click! Network`s general manager. “There`s an importance in being first to market, but you also have to remain responsive. Everything we`ve done has been based on customer needs, and we`ve planned and built a system to support our community`s growth.”

Conectiv: a new breed

Resulting from the merger of Delmarva Power and Atlantic Energy, Delaware-based Conectiv provides a good example of how to organize a business and culture around serving the customer.

“Kraft has its cheese and salad divisions, Conectiv has HVAC and long-distance, and that`s how product companies are formed. That`s a good strategy,” said Rubenacker of Renaissance Worldwide.

Conectiv offers its value-added products and services through various enterprises, including Conectiv Services, HVAC and plumbing; Conectiv Communications, local and long-distance, carrier and data/network services; and Conectiv Solutions, power systems consulting.

This year, Conectiv launched a marketing campaign entitled “Altogether Better,” which touts the company as a preferred source for a variety of “vital services.” Conectiv`s first branding effort raised awareness from zero to 55 percent in five months.

Barry Elson, Conectiv`s executive vice president and retail enterprises president, said the company spent about two years looking at customer behavior, profit economics, potential products, and its internal structure and culture.

“We don`t have national or international aspirations. We`re going to be a regional player,” Elson said. “With that in mind, we determined that we can`t rely on one product or service. We need a multiple of offerings that appeal to multiple types of customers.”

To keep employees focused on those customers, Elson said Conectiv now offers its division chairmen and general line managers annual bonuses and long-term incentives based on customer care, innovation and financial growth.

“This is our strategy, and it may not work for everyone,” he said. “People are not emotionally involved with their water heaters, so it`s up to us to add the pizazz.”

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