How much will utilities invest
in energy service companies to boost earnings beyond the normal growth rate?Going on the "defensive-offensive."
In the early 1990s, flush with...
In our vision of the future, today's distribution function will be divided into two companies (em a poles and wire function and a merchant function. The merchant company would provide value-added products and services to the customer. We have used credit cards, branding, and other marketing gimmicks to sell our services, particularly demand-side management (DSM). In the future, however, I think there will be greater emphasis on the types of energy-purchasing alternatives we provide. Pricing options are one offering that we would expect to expand. The options could range from real-time pricing and green rates to negotiated fixed-fee prices.
Once merchants become competitive with one another for all customers, as we expect that they will, they will offer products and services well beyond our ability to imagine today. Information technology (IT) availability will increase, giving us more opportunity for two-way communications with customers. Obvious examples include real-time electronic billing information and remote energy management. As IT innovation occurs, we will seek ways in which to use that innovation to add value to the customer relationship.
Without betraying any competitive secrets, I would say that WP&L is working hard to understand what our customers want most from us. High reliability and low prices are givens. Beyond that, we are looking at just about everything. What we eventually offer will, I hope, be whatever services provide us the greatest advantage with our customers.
The simple answer to all of the questions is "yes." Power marketers today pose a threat, or (em perhaps more appropriately (em are competition for our wholesale business. Less in response to any threat than in anticipation of future opportunity, WP&L has developed an aggressive "in-house" power marketing group that buys and sells bulk power through our utility operations.
Today, WP&L's generation costs are among the lowest in our reliability region, and we are taking steps to improve the efficiency of our generating units, reduce our fuel costs, and find other ways in which to lower our costs further. When transmission barriers are finally removed, we expect to be ready to buy and sell power in a broader arena and become even more aggressive within the bulk-power market.
We also have developed a power marketing capability in Heartland Energy Services, a company we spun off into the Heartland Development subsidiary of WPL Holdings. HES began by marketing natural gas, and last spring became the first FERC-approved utility-affiliated electric merchant in the country. Today, HES and WP&L's power-marketing function are separate, competing entities. After utilities are vertically disintegrated, I would expect these two groups to become one company.
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