Customer Choice Weighs In

May 1, 2001
As a power quality professional, energy manager, or user, you might be interested in the signals and attitudes your local utility is throwing out regarding what it believes to be its biggest issue. Based on a recent survey of utility executives conducted by PHB Hagler Bailly, several important issues weigh heavily on their minds. Right at the top of the list is the issue of customer choice

As a power quality professional, energy manager, or user, you might be interested in the signals and attitudes your local utility is throwing out regarding what it believes to be its biggest issue. Based on a recent survey of utility executives conducted by PHB Hagler Bailly, several important issues weigh heavily on their minds. Right at the top of the list is the issue of customer choice.

According to the survey, an encouraging 71% of the utility executives think they can make a profit selling energy and services to residential customers. Furthermore, 82% foresee an increase in value-added services over the next five years. Despite these numbers, however, the survey also shows that respondents have far less confidence in achieving the corporate or public policy objectives associated with customer choice.

The difficulty of achieving profitability in retail energy markets has been well documented. The survey supports that contention — few of the respondents mentioned retail energy activities, such as energy services or retail marketing, as having a high rate of return.

The public policy objective of choice is lower prices and greater creativity in the value propositions offered to consumers. Respondents expect new combinations of products and services as well as increased offerings of value-added services. But there is greater skepticism about the linkages between the ability to choose, actually choosing, and lower prices. The percentage of respondents who feel that small retail customers will eventually be required to choose among the electric providers is 82. The results are similar for gas, with 78% expecting retail choice to be required. The time horizon of when choice will become available is also similar — 53% feel that every retail customer will have a choice of electric suppliers by 2005. For gas, the percentage is even higher at 66%.

The survey notes that having the ability to choose and actually choosing a different retail supplier are two different things. The results make this point dramatically, and they add a twist by sharply distinguishing between customer types. More than 80% of the respondents envision fewer than 25% of residential and small commercial customers switching suppliers in the next five years. In contrast, nearly 60% foresee more than 25% of industrial and large customers switching. The result is the same for gas.

Of course, actually choosing a new supplier is not required to stimulate competitive market activity. The simple possibility of choice can do that. But will the possibility or the actuality of choosing result in lower prices? The results parallel those figures just given. More than 80% of the respondents do not expect to see lower bills for either gas or electric small customers. Yet 67% expect industrial customers to see lower gas bills and 75% expect industrial customers to see lower electric bills. The gap between large and small customers is stunning.

In addition to the skepticism that industry restructuring will bring lower prices for the vast majority of customers, there also is concern that the codes of conduct governing business practices will not be effective, especially among small-company respondents. Among large companies, between 62% and 87% expect the rules to be effective. But among small ones, only 25% feel that way. In fact, a 51% majority feels that they will not be effective, with the remaining 25% unsure.

Aside from the issue of customer choice, the Bailly survey covers even more ground. For example, it identifies branding and convergence as the foundations of future retail companies and predicts growth in information technology investments, to name a few.

As a recipient of Power Quality Assurance Magazine, your need to assimilate this information into your operation can be a critical factor in determining the way you conduct business with your local utility in the future. Your realization that the utility recognizes the issue of customer choice as its most important concern can put you in a stronger negotiating position when conversations turn to customer service response and retention.

Barry LeCerf, Publisher:
Utility, Technology, and Business Group
[email protected]
www.powerquality.com

About the Author

Barry LeCerf

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