The next decade will bring serious disruption to the utility industry. But with cooperation from regulators and legislators, utility companies will be able to shift their business models to...
Information Architecture: Building the Right Foundation for Customer Choice in Energy
wholesale market for each energy commodity;
- Retail offers made to mass-market consumers;
- Financial risks made manageable and hedgeable;
- Market power not concentrated among a few participants;
- Consumer confidence maintained; and
- Information requirements of the competitive energy marketplace must be addressed effectively.
Information technology (IT), and the Internet in particular, can enable market transition and help address painful information problems already being felt in states that have restructured. (See sidebar, The Internet: Tomorrow's Solution Today.)
The Front Lines of Choice:
Trial and Tribulation
To appreciate the need for timely information flows and processing, one need only survey the plight of those who have forayed into competitive energy markets. Retailers, utilities and customers are suffering startup pains of what might be called the market's Pleistocene Epoch. Many of the startup problems stem from unmet information requirements, generally associated with the relationships, transaction flows and operational dependencies depicted in figures 1 and 2.
Retailers, for instance, have experienced a harsh and unforgiving market characterized by lack of financial-hedging instruments, razor-thin margins on the commodity, a state-by-state approach to market rules and, ironically, a national economic cycle so favorable that it is difficult to draw corporate customers' attention away from revenues to cost-reduction. Thus, weak performance by an energy marketer in handling any retail transactions can spell doom.
Utilities, while not necessarily exposed to the same threats as retailers, have found themselves on an unfamiliar voyage without a navigational chart. Some are forced to divest or separate their generation assets and subsequently find themselves on a competitive playing field. After settling recovery of generation-related stranded costs, utilities naturally tend to perceive moves toward competitive metering and billing as potential sources of new strandable costs. Moreover, utilities' existing information systems typically don't meet the new requirements being created in the marketplace. And on top of all that, rate freezes generally are a key part of most utility settlement agreements related to choice. There are new risks and cost pressures, accompanied by new rate limitations.
For the nation's rural electric cooperatives and municipal electric systems, customer choice often includes the need to apply market rules designed for investor-owned utilities. These rules do not fit the scale or nature of co-ops and munis. In addition, these utilities' relative smallness creates extreme budget pressures and calls for creative approaches to implementation. Implementation costs, it turns out, do not necessarily shrink in proportion to the smaller number of meters served.
Last but not least, customers have experienced the confusion of a major change in the way they are served, offers that are competitive but not necessarily comparable, a benchmark price for comparison that is set by regulatory order rather than market processes, and a sense of exclusion from the design process. The revolution is not customer-driven, and sometimes the results reflect lack of adequate customer involvement.
Help is needed, and the good news is that promising business approaches and technology are available for immediate application where there is the collective will and shared sense of urgency.
Market Problems With
The requirements retailers face as