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Fortnightly Magazine - March 15 2000

along with Stephen King and Harry Potter? Nothing but federal legislation, to open up a national retail energy market with the uniformity that rewards e-commerce.

NO OTHER INDUSTRY IS SO PROUD OF ITS MONTHLY BILL. At a typical firm, the bill is the last thing you want customers to notice. It's almost an afterthought - sent out only after all the business is completed. But a utility often will not talk with a customer for years except through words printed on its bill, and then spend a small fortune on quaint bill-stuffers that consumers almost never read. That may explain why utilities appear so reluctant to give up the billing function, even though it probably deserves to be outsourced.

"Do I invest $100 in a CIS [customer information software system], only to find that it becomes a future stranded asset?" I heard a utility exec ask that question recently. He was worried that his state might adopt metering rules that force utilities to submit proprietary customer information to an omnibus agent for meter data management. Yet this question only reveals the crucial difference between customer contact and back-office drudgery.

As another consultant told me recently, what utilities need to do is to take the "C" out of "CIS." Keep the front-end customer contact, but loose the back-end functions that involve nothing but data handling and billing. Get rid of them. They probably belong on the Internet.

Yet again, here is where the traditional utility finds itself paralyzed.

If utilities have learned one lesson, and learned it well, it is to follow the money. And in retail energy that means the C&I segment - the commercial and industrial customers. Utilities have learned that new technology (smart meters, etc.) often does not pay for residential users, but can be deployed profitably only for the C&I class. That means that when the chief information officer asks the board or upper management for a multi-million-dollar budget to develop a new website or to expand the site's current capabilities, a "No" answer will likely come back unless the CIO can show how the strategy relates to the C&I class.

But that Internet strategy is exactly backwards. The Web doesn't appear today to provide an overwhelming advantage for utilities in their dealings with large-volume C&I customers. (Though someone will come along eventually and prove me wrong.) Recall the rate discounts that Detroit Edison negotiated a few years back with the (then) Big-Three automakers. No doubt those were high-level talks, with high-level lawyers at the table. Not a transaction to be mass-produced.

By contrast, the Internet's efficiency lies in democratization - in paring down the high transaction costs that tend to overpower potential revenues where you're dealing with a large universe of small-volume customers. In other words, for utilities to milk the 'Net the way it was designed to work, they must make a full U-turn and focus tightly on the very customers who for years they have practiced to ignore. This disconnect between the tried-and-true C&I focus and the opportunities now available online for mass marketing probably explains