Gas Retail Rate Design. In a move toward equalizing rates of return between customer classes, the Oregon PUC authorized Northwest Natural Gas Co. to increase base rates by...
There's more to meeting marketing challenges than first meets the eye.
Imagine you've just taken over as chief executive officer (CEO) of a $1-billion gas utility in a major metropolitan market. Your predecessor retired early, leaving this mythical local distribution company (LDC) (em let's call it Total Gas (em unprepared to engage the competition on the home front and ill-equipped to grow unregulated earnings.
Time is short. Some LDCs are pushing ahead of you and choosing joint-venture partners. Others are merging to create the critical mass that will likely be needed to compete in the new millennium. To complicate matters, the state Public Utility Commission (PUC) has just approved a pilot program offering 5,000 of your residential customers the opportunity to choose their supplier.
Your job, as you read this column, is to make some quick judgment calls that will frame your approach to reengineering and repositioning your company for the battles ahead.
Drawing on a survey of what several LDCs consider their major threats and advantages, we pose 15 challenges. Based on the admittedly cursory background information provided, what strategy would you choose to meet them? In each case, we tip our hats to the companies and managers who have already made such decisions.
#1 (em Payroll Reductions
Total Gas must reduce overhead by at least 20 percent. A big bulge exists in your unionized workforce. How do you take a big bite out of total wages, gain the flexibility to reassign workers, and get them to buy into a "win-win" culture?
a) Lower the body count with an aggressive early retirement program; let your human resources people make the numbers work.
b) With enough time, try mutual-gains bargaining that earns paybacks for organized workers commensurate with returns for the company.
c) Execute a 7-percent, across-the-board cutback of salaried as well as union workers; reorganize with new job descriptions that many employees will have to apply for.
#2 (em Winter Reliability
The past winter created havoc between many gas suppliers and their commercial customers. Some failed miserably to live up to their contractual commitments. How can you earn some new customers before the winter kicks in?
a) Survey the companies that have cut into your supply business, and work to beat them on service and price.
b) Team with an aggressive, low-cost gas marketer and earn back as much market share as possible with prices as low as your chief financial officer will permit.
c) Segment the commercial market that Total Gas can reasonably pursue; identify and target those segments that offer the most long-term earnings potential.
#3 (em A Price War
An unregulated subsidiary of a nearby energy utility has just launched a print, radio, and direct-mail promotional campaign to service your residential customers under the pilot program. This company is offering $50 to every customer who makes the switch. Your unregulated energy marketing unit is permitted to participate, but is it worth the risk and the expense, since the LDC makes money whether it sells or transports the gas?
a) Match the $50 offer because just about every part