Mergers & Acquisitions
CP&L + Florida Progress. Carolina Power & Light announced Aug. 23 that it would purchase Florida Progress Corp. for $5.3 billion in a combination that...
Current utility marketing efforts focus almost entirely on large customers or "key" accounts, responding reactively to competitive threats such as self-generation, municipalization, and even geographic relocation. These threats have become all too real for many utilities. Niagara Mohawk Power Corp. has lost 15 percent of its large industrial load in the last 15 years. The recently negotiated long-term power contracts between Detroit Edison and the Big Three automakers are a conscious response to the looming threat of retail wheeling. Anticipated competition for key accounts under retail wheeling is prompting many utilities to begin developing proactive key-account marketing plans that include incentive rates, technology assistance, and a good dose of TLC.By contrast, utility mass accounts (em that is, residential and commercial customers (em are not currently at risk from competitive factors. Thus, strategic marketing for mass accounts is typically placed on a back burner, to be addressed later when details on the industry transition to competitive markets become more clear. The not uncommon view that retail wheeling will slowly extend beyond a limited number of large customers, perhaps never to reach individual retail customers, makes this wait-and-see attitude seem prudent in the current cost-cutting atmosphere.
This is dangerous thinking for several reasons.
Key Accounts are Fleeting
First, in a world of retail wheeling, key accounts will quickly become unattractive utility customers. Key accounts have the corporate experience and incentive to play one utility off another to extract the best possible energy contract. Since these customers also operate in increasingly competitive markets, they can be expected to drive hard bargains to minimize their energy costs. Retail wheeling brokers will work hard to ensure this result. Key account negotiators will work to secure contracts that cover utilities' fixed costs and contribute the smallest amount possible to variable costs. This means that the viability of individual utilities will hinge on retaining profitable mass accounts and securing new mass accounts from competitors' utility service areas.
Second, retail wheeling down to the individual residential customer, in one form or another, will almost certainly occur in the reasonably near future. The only real obstacles to retail wheeling are political, and the lineup of winners and losers makes the extension of retail wheeling to residential customers almost a foregone conclusion. Once retail wheeling is allowed for larger industrial customers, how can the same choice be denied to hospitals, regional shopping malls, grocery store chains, and large apartment buildings? Some large suburban residential subdivisions use as much energy as key accounts; these entities already have homeowners' associations with decisionmaking apparatus, histories of contracting services for their members, and experience in achieving goals politically. Even if retail wheeling evolves in such a way that only large customers and large purchasing cooperatives initially participate, a substantial portion of the commercial and residential markets may soon be open to competition.
Finally, since it takes two to five years to develop mass account competitive positioning, utilities who currently ignore mass account marketing development do so at their peril. Utilities that are prepared to maintain and develop new mass account customers in the most profitable way