Free market pushes industry pendulum back to value-add

April C. Murelio

Associate Editor

Renewing its focus on value-added or bundled services, the utility industry serves as a prime example that “history,” as Mark Twain once quipped, “doesn`t repeat itself, but sometimes it rhymes.”

Today`s utilities, energy service companies (ESCOs), and affiliates must rediscover the customer and redefine their niche in a free market. As futurist Edward Barlow put it, “The future is not core. The future is value add. Creating and supporting people`s lifestyle choices is the purpose of your business.”

But bringing value to people`s lives isn`t necessarily a new concept bandied about in utility board rooms. Industry founders like Thomas Edison, Samuel Insull, George Westinghouse, and John Barnes Miller understood that until the kilowatt attaches to something people value, it remains a commodity with ever shrinking margins.

Before World War I, for example, members of Edison Electric`s lamp department pedaled from house-to-house to replace light bulbs. And like many utilities, Public Service Company of Oklahoma (PSO) in Tulsa-once part of the Insull empire-staffed home service departments for decades.

Until 1931, when the Oklahoma Legislature restricted utilities from selling and servicing appliances, PSO`s Electric Living Centers wowed customers with all the latest electric gadgetry. Even after the appliance ban, PSO and others across the country offered electric-range cooking classes and product demonstrations.

“The early promotional efforts of Insull, Miller, and other industry leaders were customer oriented, concentrating on specific customer needs,” said Clark W. Gellings in his book, Effective Power Marketing. “Increasingly, however, they emphasized selling rather than marketing and pursued that path for many years. As electricity use grew, and holding-company domi- nation increased, utility efforts focused back on the product, not the customer.”

Old strategy gets new spin

As today`s competitive market-defined by electricity`s volatile trading and thin profit margins-pushes the pendulum back to the customer, the industry seems to be putting a new spin on many of the old strategies.

In 1929, Lucille Johnson, a home economist, opened La Cocina Electrica in PSO`s general office to espouse the benefits of cooking with electricity. Within its first year, Johnson and others in the home service department reached 15,000 women and created a notable increase in domestic electricity use.

Today, utilities, ESCOs and affiliates offer kilowatts packaged as cable television, home security, energy management, and Internet access. However, it`s estimated that only 44 percent of American households use personal computers, with even fewer surfing the web.

Following the lead of La Cocina Electrica, Essential.com, one of the emerging online utilities, now offers a year`s free Internet access for its new phone service customers.

Tacoma Power`s Click!, a new player in the telecommunications arena, offers Worldgate, an Internet connection via television and sans computer.

Last year, Sierra Pacific Energy in Nevada opened its Simple Choice General Store, where people buy Whirlpool appliances, cellular phones, air filters, surge protectors and satellite dishes.

Sierra`s retail effort is part of the Simple Choice program of en•able, a joint venture of PacifiCorp and KN Energy. Utilities contract with Simple Choice, buy the products and services wholesale, and then offer them to customers.

Offering more with less

Sierra`s partner-ship with en•able becomes a typical retail business model as utilities, ESCOs and affiliates must offer customers more services and products with smaller staffs and tighter budgets.

“Power marketers and utilities are competing head-to-head for revenues and profits. To thrive, you need to be customer-centric, efficient and flexible,” said Kevin Monagle, operations vice president for Excelergy Customer Care Solutions. “Anything that lowers your transaction premiums or costs increases profit and enhances customer service.”

Either by offering retail product packages or setting up software systems-customer care, Internet bill presentment and payment, or outage and risk management-quite a few companies have emerged to help utilities and ESCOs do just that.

Value-add vendors

Although relatively new to the scene, these vendors, who must change with the industry they serve, already report significant evolution as they capitalize on opportunities created by technology advances and regulatory changes.

“As markets deregulate and utilities start operating in multiple states, the enrollment process becomes much more complex,” said Carey Bullock, Excelergy president.

To handle the needs of these markets, Excelergy interfaces its ABP 1200, a billing and customer care system, with its Proposal Manager, which automatically enrolls customers, updates their information, and alerts the sales force when contracts terminate.

Founded in 1996, ConneXt-also in the business of helping utilities, ESCOs and affiliates trim operating costs-first went to market with a line of AM/FM/GIS systems dubbed Tellus.

Del Wilson, ConneXt`s director and general manager of the Tellus product line, said before deregulation, utilities purchased outage management systems because they made sense from an operations point of view.

“Now, outage management is a customer service issue,” Wilson said. “Utilities want customers to know that operating efficiently is another value-add they can offer.”

Robert Bismuth, then-ConneXt president and CEO, said as the company started rolling out products designed for ESCOs in 1997, it soon discovered the importance of integration and packaging. (Note: In April, Bismuth left ConneXt to pursue other start-up opportunities. Robert L. Dryden now serves as president and CEO.)

“ESCOs usually don`t have the luxury of spending a lot of capital on systems, so offering them an integrated package makes more sense,” Bismuth said. “Streamlined operations, reduced overhead costs and flexibility to respond to market changes are the things our customers need and want.”

Besides Tellus, ConneXt offers ConsumerLinX, a customer-centered information and billing system specifically designed for the utility market.

Capitalizing on several technology advances involving the Internet and “intelligent” in-home devices, Coactive Networks introduced its home telemetry gateway product to the United States market in February.

Like en•able`s Simple Choice, Coactive sells its Coactive Connector 2000 device to utilities, ESCOs and affiliates so they can offer automatic meter reading (AMR), demand side management (DSM), security, appliance monitoring and maintenance, and home automation to their customers.

Adam Marsh, Coactive Networks marketing vice president, said when the telecommunications industry deregulated, MCI was ready with a flexible, general infrastructure that allowed it to offer an extensive array of services.

“Some of these services worked and some didn`t, but the overall strategy was hugely successful in gaining market share,” Marsh said. “Our solution similarly allows utilities to establish a strategic infrastructure to offer their customers an expandable set of value-added services, beyond electricity.”

With deregulation opening the door, he said Coactive`s utility customers are eager to explore their options. The Connector 2000 lets service providers and home owners use any web device to access and control home gadgets, ranging from security systems to air conditioners.

Although a far cry from pedaling light bulbs door-to-door or hosting cooking classes at the main office, the motivation behind this new line of high-tech, value-added services remains the same.

“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.”

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