Consumers appear unaware. Pilot programs seen under-subscribed.
TWO REPORTS RELEASED SIMULTANEOUSLY IN WASHINGTON, D.C., appear to confirm the worst fears of parties to the utility...
The nonstop dialogue about retail wheeling, power brokers, PoolCos, and restructuring overlooks customers and their increasing thirst for value-added services. Aside from a few emphatic words by some industrial users, little has been said about customer expectations. This article offers a snapshot of the brave new world of energy service marketing (ESM). ESM will take the place of demand-side management (DSM) and electricity marketing, blending the best of both.
ESM is simple. In contrast to DSM and its highly complex agenda, ESM seeks only to deliver value to customers. The industry has never decided whether DSM is a customer service, supply-side substitute, or environmental crusade. But ESM clearly offers products and services that customers want and need (em pricing options and contracts, information services, end-use services (actually selling lighting, heating, cooling, drive power, and so on), operation and maintenance, and financing for energy equipment investments, among others.
Utilities that wish to compete only in the electricity commodity business will find their margins shaved to a bare minimum. Survivors will search for broader geographical markets. The ESM arena offers many opportunities for higher profit margins.
Electric utilities have always revered the large industrial customer. But those customers just want a low price. And their market clout will only grow under under competition. On the other hand, most nonindustrial customers have a different focus. They represent a prime market for ESM. These customers must concentrate intently on their market and usually lack the time or interest to tackle energy options. Yet they can be highly receptive to assistance in lowering operating costs, improving comfort, meeting environmental rules, and simplifying their everyday lives.
Money Out There
Why should a company add ESM to its business plan? In part, for the same reason used to justify integrated resource planning (IRP): Customers can save a lot of money installing energy-efficient technologies and systems. If an intelligent and innovative ESM company can tap this market, customers can gain substantial value and the ESM company can build profits. But to unlock this market, ESM players must overcome barriers to energy-efficiency investment, such as high initial cost, lack of capital, fear of technology failure, and lack of information or availability.
The table below estimates the energy-efficiency portion of the ESM market under the scope of current energy service company (ESCO) and utility programs
(two- to five-year time frame). Calculations assume that energy-efficiency investments would be made in an unregulated market in which no cross-subsidies take place.
Beyond energy-efficiency applications, the market can be even more lucrative; its potential to expand limitless. The market for "customer solutions" could grow as large as $25 billion per year, including communications, billing assistance, financing, entertainment, power quality, environmental compliance, and productivity enhancements.
Utilities today are in the best possible position to pursue ESM. They can still use ESM to protect long-term market share, just as the City of Austin and Public Service Co. of Colorado link DSM program participation to continued electricity purchases. Utilities still have an advantage in market positioning, just as AT&T did in the long-distance market. But AT&T lost