Public Utilities Reports

PUR Guide 2012 Fully Updated Version

Available NOW!
PUR Guide

This comprehensive self-study certification course is designed to teach the novice or pro everything they need to understand and succeed in every phase of the public utilities business.

Order Now

The Electric and Gas Industries are Converging: What Does it Mean?

Fortnightly Magazine - April 1 1995

reserves by owners of substantial gas-fired generation capacity and much cash) will bring considerable competitive and operating benefits.

Competition and collaboration among the gas and electric industries provide the impetus for convergent evolution, which changes the industry structure. However, convergent evolution of functions does not by itself determine who wins and loses, which firms end up owning which assets, and who makes money where in the industry. That essential business aspect will be determined by which companies are either clever or lucky or diligent (or all) enough to internalize the various economies. It will prove quite unlikely for any company to internalize even two of the economies, since each requires a different corporate culture, balance sheet, executive emphasis, and corporate priority. It is almost impossible that any firm will successfully internalize all four economies, though many will squander fortunes and bruise executive egos trying to.


Just as the combination of Intel, Compaq, Apple, Microsoft, and Novell invented computing democracy and overthrew IBM's seemingly impregnable rate base, so too will electric and gas supply aggregators/wholesalers and unregulated electric and gas retail merchants combine to replace the production and sales rate base of utilities. The new retail merchants will leverage their intellectual capital to unleash cyberspace marketing on the energy industry. For historical reasons, a paucity of marketing imagination has long characterized both the electricity and natural gas industries. This gap creates a powerful opportunity. All successful unregulated energy retailers will be Net (that is, Internet) merchants by the end of the decade, using the vast potential of cyberspace to create entirely new and highly appealing ways to satisfy energy consumers. These Net merchants will actually market five broad categories of energy service to middle market and residential customers: electrons at the meter, gas molecules at the meter, energy information services, energy efficiency, and consumer financing for energy efficiency. The second generation of Net merchants (within 10 years) will transcend electrons and molecules (energy goods) to begin directly selling heat, light, and motive force (energy performance) to retail energy consumers.

The Net merchants will succeed by vaulting over the three great barriers to retail sales entry, as perceived by utilities: retail billing, collection, and customer service systems; efficient mass aggregation of meters; and access to every consumer in the service area. This remarkable new breed of energy retailer will staple their dreams of consumer service and proliferating energy products to five reinforcing technological trends: (i) remote digital measurement systems; (ii) the geometrically increasing connectivity of Internet; (iii) hypertext software; (iv) exponentially decreasing costs of bandwidth (over 5 million miles of fiber-optic trunk lines have already been installed, and these are massively underused); and (v) interactive audio/video via the television or telecomputer, incorporating speech recognition codes and information navigators.

The future of billing, collections, and customer service in every retailing industry is mass customization. No existing utility billing system seems capable of being modified to meet this need. Interestingly, most utilities are not adept at retail marketing and meter aggregation because they have never had to do it. Utilities