Energy Strategy
e-Business: Why Waiting Could Cost You
October
15, 2000
By Bill Nesbit
More than a source
of new revenue, doing business on the web also is vital to keeping customers.
Increasing
margins is a key challenge for energy companies. So too is
maintaining and growing customer bases in the face of deregulation and
emerging retail energy markets. As industry executives seek out strategies
to meet and manage these demands, the concept of providing value-added
energy services to customers via the Internet-or e-business-increasingly
is recognized as a promising option for addressing both challenges.
"e-business for
energy companies is an opportunity waiting to be realized," according
to Jim Blaschke, an independent business advisor based in Southborough,
Mass. "Margins on commodities-whether electricity, gas, telecommunications,
cable TV, DSL, or whatever-are so razor thin that [energy companies] are
going to have a hard time making a lot of money there. Instead, the money
is in adding value to the customer base in new ways." Web pages providing
general customer information and answers to frequently asked questions
are a first step in this regard. Establishing this service as a complement
to call centers can produce savings of 30 percent to 40 percent or more
per customer interaction, according to some estimates. But value-added
energy-related services tailored both for residential and, especially,
commercial and industrial (C&I) customers hold far greater promise for
growth and profit, sources say.
"What successful
utilities have been doing is building these value-added services, and
bundling them with the energy commodity so that the customer is getting
more of a total energy solution than just a bucket of kilowatt-hours,"
says John Powers, president of Energy Interactive Inc., Oakland, Calif.
His company develops energy information systems and services.
A range of value-added
services is being evaluated and, in many cases, marketed by energy companies.
These services include electronic bill presentment and payment, load profile/pricing,
curtailment and/or real-time pricing, two-way control of energy-using
equipment, control of distributed generation equipment, price comparison
analysis, and energy trading.
Providing such
offerings over the Internet is a natural, sources say, presenting win-win
opportunities for energy companies and customers. For energy companies,
they represent a new source of revenue and profit that flows naturally
with the energy commodity. Moreover, they foster new intimacy and interactions
with customers, better understanding, and-it is hoped-greater loyalty.
For customers, these value-added services provide access to new and valuable
information they can use to make smarter decisions about their energy
use, thereby cutting costs and improving their operating efficiency and
productivity.
TXU Energy Services
in Dallas, for example, offers C&I customers an energy-management service
via the web. Konnections, as it is known, gathers interval energy usage
data from customer meters, and analyzes and displays it graphically using
Energy Profiler Online software from Energy Interactive. Customers access
the information in a secure area of TXU's website and use it to monitor
their usage, evaluate the effectiveness of energy saving programs, establish
benchmarks for usage performance, and gain a better understanding of how
they use energy. In addition to analyzing individual sites, Konnections
customers also can group their various facilities by region or building
type to compare their energy consumption across multiple locations.
According to Carlos
Ruffino, technical solutions manager for the company, the service was
implemented to help customers gain operational efficiencies at their facilities
and develop a long-term strategy for securing the best electricity price
when the Texas market is deregulated in January 2002. The software also
is capable of providing pricing information, and Ruffino plans to begin
offering that service in the first quarter of 2001. He subsequently hopes
to add curtailment capabilities and services for two-way control of energy-using
equipment.
"The way we look
at it," Ruffino says, "is that if we don't give [customers] this information,
they're going to get it eventually anyway. And we'd rather be the ones
to work with them long term. As it is, we can't keep up with demand [for
the service]. It's unbelievable. It's pretty exciting to watch, actually."
Nine hundred customers
with 2,400 meters subscribed to Konnections as of August, according to
Ruffino, a total representing approximately 25 percent of the C&I market
in the company's service area.
"I definitely
believe [the service] has made a positive difference in the way customers
perceive us," he adds. "No question about it."
Payoffs:
Don't Underrate Satisfied Customers
Traditional measures
of success for these types of initiatives are the same as for any business
venture, analysts say. Topping the list are return on investment, revenue
gain, market share, and other classic financials. Business volume is another.
"We look at volume,"
says Todd Black, vice president of sales and marketing for Usource in
Hampton, N.H. "We want to drive huge volume." Usource provides an auction
service via the Internet by which mid- to large-size energy users can
bid to purchase gas and electricity.
For e-business
pioneers in industries throughout the economy, however, customer satisfaction
is emerging as an equally important measure-indeed, as the foundation
for a firm's overall success. (See sidebar, "Satisfying Customers Online?")
"Utilities have
tended to be valued in the past in terms of their physical assets," says
David Cain, manager of advanced billing and customer operations systems
for EPRI in Palo Alto, Calif. "But in the future, the value of owning
and operating physical assets will decline dramatically. When we look
out in years ahead, it's going to be customer assets, how many profitable
customers you have. So ultimately, the customer is the only appreciating
asset a utility is really going to have."
Energy companies
until now have placed limited emphasis on customer satisfaction, because
traditionally they operated in regulated environments where, for all intents
and purposes, their primary customers were their regulators. Complicating
the customer-satisfaction challenge for energy companies and others across
the economy is that with the proliferation of the Internet, consumers
have ready access to greater and more detailed information than ever before.
As a result, they are better informed and have greater market "power,"
including one-click access to competitors.
Utilities do have
the advantage of an embedded and extensive customer base as they move
into deregulated markets, however. According to various marketing information
analyses, the cost to win new customers can be five to seven times greater
than to maintain existing ones.
Growing
Demand: C&I is the Driver
Surveying customer
sentiment is nothing new for energy companies. But the scope and level
of detail of these efforts is expanding significantly as companies position
themselves for retail competition, and strive to leverage the cost efficiencies
and customer interface opportunities available via the Internet.
Primen, an energy
market intelligence company affiliated with EPRI and the Gas Technology
Institute, and headquartered in Madison, Wisc., is active in this field.
One clear message of the company's research to date, according Rich Gillman,
vice president of knowledge solutions in Primen's Portland, Ore. office,
is that energy customers do recognize the value in value-added services.
"That's clearly
a message that we have in a lot of our results," says Gillman. "Last year
we did an extensive market research/customer choice project and the big
message we [found] is that a substantial number of customers would pay
more [for value-added services]."
Primen also recently
completed a study, "Building the Business Case for Energy E-Commerce:
What Do Customers Think?" focusing on the online behavior of residential
energy customers. It plans an e-commerce study on C&I customers later
this year. Findings in the residential study indicate that while there
is significant potential for cost savings by moving customer care practices
to the web, the customer base on the web is not substantial enough at
this time to achieve these savings. The study also shows that use of the
web as a customer acquisition tool will not yield sufficient returns to
recover costs, at least in the near term, given purchasing behaviors via
the Internet by residential customers.
"The World Wide
Web shows significant promise and is changing the ways in which we think
about how commerce is conducted," Gillman says. "However, as regards residential
customers, it has to become more a part of the mass market's toolbox and
more of an integral part of actual purchases in order to realize its potential.
Its use for researching and then acquiring even 'standard' products and
services is currently very low. For utility-type services, it is almost
nil."
SCANA Corp., Columbia,
S.C., ranked highly in a recent residential customer satisfaction survey
conducted by J.D. Power and Associates and Navigant Consulting Inc. Fred
Hanna, vice president of customer service for SCANA, is well aware of
e-business opportunities and pitfalls.
"While the technology
is certainly new and opens up a range of new opportunities," says Hanna,
"fundamentally you still have to manage the customer's expectations. And
some of the research that I've done, particularly from a customer service
perspective, is that the dot-coms of the world have not all established
consistency in the level of service they provide to the consumer over
electronic channels. I've seen research that shows that some of the more
popular dot-com companies have taken days to respond back to consumers
with questions. Well, I think if you're going to initiate an e-business
project, the worst thing you can do is open that channel up without making
sure you have examined all the underlying processes that support it, and
be there to provide an acceptable service level."
Earlier this year
SCANA implemented an electronic bill presentment and payment (EBPP) service.
It is studying implementation of an e-mail response management system
and other basic information fulfillment services.
"This whole area
of the Internet and e-business is one we believe will continue to grow
and expand, in some cases exponentially," Hanna says. "I don't think there's
as strong a business case in the residential market as in C&I. But I don't
think you stop any initiatives in [the residential area], because the
business case there will improve over time. Also, for strategic reasons
you've got to be there, because each year a new generation graduates from
high school and college, and they're technophiles."
Otter Tail Power
Co. in Fergus Falls, Minn., is another energy company focusing on value-added
products and services. "They're all on our list," says Dave Lehrke, the
company's manager of transition planning and development. "We're just
going to have to start rolling out one after another."
Otter Tail operates
a "relief energy" website where large customers can bid to be paid for
energy they agree to release to help meet demand during peak load periods,
and an online street lighting design and pricing service for commercial
and municipal customers. Other e-business programs planned include a wholesale
power marketing service for C&I customers offered through Otter Tail's
unregulated energy services company, and EBPP for residential customers.
"The web gives
us so many more options than we've ever had for personalizing what we
do for each customer," says Lehrke. "It's like a smart bill stuffer, in
a sense."
The
Connection: Basis of CRM
Offering value-added
services facilitates this personalization process, analysts say, thereby
reinforcing customer relationships and increasing customer satisfaction.
"If you talk to
a traditional utility and you say, 'Are you connected to your customer?'
they'll say 'Sure,'" says EPRI's Cain. "And what they're thinking is the
meter. They're connected at the meter. But if you talk to a marketing
person and ask that question, they talk about connecting to the customer's
brain: They like you, they want you, it's a valued relationship on both
sides.
"Connecting to
the customer in the former case is a physical connection. But connecting
to the customer in the future is more emotive than anything utilities
have experienced in the past. And I submit you need a different systems
approach to maximize that."
The systems approach
most often mentioned to accomplish this goal is customer relationship
management (CRM). Defined as a framework for managing the full range of
customer interactions, CRM is seen as the next step beyond conventional
customer information systems (CIS) and enterprise systems.
Various CRM concepts
exist. But according to Guerry Waters, vice president of energy information
strategy services at META Group Inc. in Stamford, Conn., all have essentially
four components:
(1) an analytical
process,
(2) a sales and marketing process,
(3) traditional CIS, and
(4) a customer interaction
center.
The analytical
component is where a company accumulates data about customers and matches
that with internal data to form a more complete picture of the customer.
"This is where
you do your deep analytics, in effect deciding what customers you're going
to target with what products and services," according to Waters. These
data will also help in identifying which value-added offerings customers
want.
"Perhaps [you're]
even looking at other issues-for example, deregulation and competitive
markets. We believe, as others do, that energy companies are going to
have to be much smarter about the way they analyze data about customers.
This [ability] is probably going to be a main differentiator in the marketplace,"
says Waters.
The sales and
marketing process includes activities to create demand for products and
services, management of sales channels, campaigns to target segments of
the market, and evaluation activities. Traditional CIS incorporates billing
and fulfillment activities, records processing, and other back-office
functions, while customer interaction encompasses direct customer contacts-call
centers, service centers, Internet sites, and the like.
Waters views the
CRM environment as "an ecological system [because] all of these [components]
have to interact in a very synergistic sort of way. If you're missing
one of these parts," he says, "then you don't really have a complete CRM,
and likely you're going to be missing opportunity in the marketplace."
Bill Nesbit,
a writer with 25 years of experience in the energy industry, is based
in Davis, Calif.
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