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Energy Service Marketing: ESM Supplants DSM

Fortnightly Magazine - July 1 1995

offer ESM over wide regions. Honeywell, Johnson Controls, Entergy Systems and Service, Southern Electric, ENRON, and Jefferson Gas/Electric have each made moves into many utility service territories.

Companies with skills in both independent power development and ESM may occupy the most powerful competitive position when markets open up. Their unique blend of expertise could lead them to form an "independent vertically integrated energy provider," the analog to the franchised-based, vertically integrated utility that may soon be dissolved. Several combination IPP (independent power producer) and ESCO businesses exist already. But what if General Electric decides to go into the business? They already make turbines, substation components, electric meters, communications systems, some commercial appliances, and virtually every major residential appliance. With their household name and the ability to dominate so many parts of the delivery chain, they could be a formidable national presence.

Potential competition from nationally recognized firms gives customer programs added value. While lack of regulatory scrutiny may make other service territories attractive business markets, utilities should not ignore their home territory. Name recognition and trust on the part of a utility's current customer base is a powerful market advantage that must be fortified to retain market share. It is always much more effective and less costly to retain a customer than to win a new one. Also, competition recognizes weakness and will hit the most vulnerable service territories first.

While debate over stranded investment and power pools dominates discussions of deregulation, the real arena of the competitive future will lie in the homes and businesses of customers. Hopefully, we can learn from other recently deregulated industries. After price wars that last for years, some companies realize that differentiating and expanding their products and pursuing specific market niches is the road to profits. Utilities must decide for themselves what type of company they want to be: low-cost commodity provider, intelligent aggregator of brokered power, regulated distribution company, or ESM provider. Unfortunately, many utilities will not seek their strategic direction until forced to by aggressive competition. Only a few will move out in front and pursue customers with the fervor of Federal Express, Nordstroms, MCI, and Merrill Lynch. Utilities are at a unique crossroads today. The strategic marketing decisions they make now may dictate their success for decades to come. t

William LeBlanc is project director of market strategy at Barakat & Chamberlin, Inc., specializing in strategic marketing, bidding, DSM, and competitive assessments for the firm's clients. Mr. LeBlanc holds an MS and BS in mechanical engineering from Stanford University, and a BA in management engineering from Claremont McKenna College.


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